EvilC Posted January 12, 2009 Share Posted January 12, 2009 I have been working on a plan and figured I would run it across some of you guys who may do this for a living or have helpful input, so anything you feel/think please post it. Recap of me: I have been out of school now and working for 18 months and now living at home. When I graduated from school, I had a total of 44kish in total which included 34k in school loan.....6k in credit cards....4k to a friend who loaned me the money to "finish" the Z. Right now I have a credit score (mid score) over 750 and have my total debt down to under 18k. I am on pace to have no debt come this September. I am trying to pay the remaining school loan off by paying $2500 a month due to its 4.5% interest but some months I will probably only pay $2000. Why the Real Estate question: I know that we the country are going through some rough times and thinking ahead for my own life, this should be the time for someone my age (25 in April) to really look into investing. Right now I have a pretty safe and sound job, so being laid off never comes across my mind. With that said, I want to take advantage of the down economy because this may be the only time that things are some what affordable again. What I mean by that is.....Someone who goes to college and comes out $50k in the hole....will still struggling making $80k plus and trying to find a home in the area I live in. Granted where you live plays a HUGE role on life style, cost of living and self happiness. I am glad I went away to college in the middle of nowhere because I really got to appreciate life itself without all the "I have to have this" mentality and that is when I realize property has no true value...only what someone says it is worth and what someone wants to pay for it. What is the plan: I have been looking at properties for the last few months just to become familiar with the lingo and get the hands on. I treat it like Z's....my first Z was junk but looked like gold to me because I didn't know any better. Now I know exactly what to look for and what are the right questions to ask. So I have been looking at multi-family houses with 5-10 units that have a positive cash flow and decent returns on initial investment. Also I have been looking at commercial strip malls and trying to get a real good sense of that. The ideal situation for me is to start with one multi-family building or a strip mall with 4-6 stores and do this on the side while I keep my day time job. Luckily the job I have now, I am outside a lot and I can use that "free time" to check/maintain property in my county if that is where my first one happens to be. Info needed: I have worked on a excel sheet that helps me look at GOI, NOI, OE, and mortgage to determine what my profit would be annually and # of years to make back the investment. If anyone had more info that could help me open my eyes more to contracts, brokers, creative ways to get mortgages...what do they look for to approve applicants, maybe 1st buyer programs, or ways to get around huge down payments like living in one of the units of a multi-family so the property is not considered an investment property.....anything like that would be great. I just thought I would throw the questions out there and if one person states a fact...it is one more thing I learned! =) Thankz. Quote Link to comment Share on other sites More sharing options...
JMortensen Posted January 12, 2009 Share Posted January 12, 2009 I'm no expert, but I'll give you my impressions. 1. I'd avoid strip malls. It's not the time when people are starting a lot of new businesses and it is the time when lots of small businesses are going under, so you might buy something and then not have any renters for a while, and that could really be a problem. The economy is pretty stable here in Seattle compared to a lot of places, and I still see a fair amount of commercial properties empty around here. 2. I'd do the apartment building or some other form of housing. A lot of people have been scared out of the idea of owning their own home, and others have a more realistic idea of how much income is required to buy a place and so they're now going to be renters for a while. If you're in it for the property value, a duplex or a triplex might be a better investment in terms of appreciation, but you won't be able to get any real income off of the rent in all likelihood. Once you start making money you might think about single family homes too. I have a friend who has 4 or 5 homes that he, his brother, and his parents all went in on. He could have had one or two that he did all by himself. They rent via an intermediary company to retarded or otherwise incapable people. They get $500 per room and there is a caretaker who comes in and cooks and cleans and takes care of the residents every day. It's a stable way to rent, they don't throw crazy parties and tear the houses up, and the rent they get covers the mortgage in all of his investment properties (but they had pretty big down payments.) 3. NICE JOB REDUCING YOUR DEBT!!! That's fast, and very impressive. One thing that really helped me though, if you're trying to save up a down payment, do not wait until all of your debt is paid before starting the saving. I was doing that for a while and made a similar dent in my debt but could never quite get there, then (and I really hate to admit this) my wife and I were watching Oprah and she had some investment guy on and he said this wait-until-you-pay-everything-off-to-save thing was a major pitfall. Following his advice we started saving immediately and got together our down payment and although we still have some debt, we're comfortable with our payments and happy with our home and the tax break we get from it. 4. Now is a great time to buy stocks. Not exactly the best idea if you want to sell them for the down payment, but you might want to sock a little away for that too, unless you're a real pessimist and believe the market won't ever rebound. Quote Link to comment Share on other sites More sharing options...
S130Z Posted January 12, 2009 Share Posted January 12, 2009 Hey Clive, Well It's finally been 2 years since my parents put their house on the market and we now have a serious buyer. I'm not saying that they will buy the house, but they are thinking about it. When we opt to sell the house it was appraised at $900,000, yeah wow. The final asking price now is $445,000. That's a lot less than expected for. Real estate might be picking up now because its at an all time low, but a lot of people still think the market is going down. In my opinion I would wait until the market starts going up a bit, That's when people will realize they need to buy buy buy. Quote Link to comment Share on other sites More sharing options...
Mayolives Posted January 12, 2009 Share Posted January 12, 2009 I've been in the RE and construction biz for about 30 years and have bought and sold most types of residential, commercial, multi unit rental properties, developed land and built many homes and buildings over the years. Yes, the present market is very depressed and banks are reluctant to lend if speculation is involved on the borrower's end. However, during the past few years, many "newbie" investor types purchased commercial and residential rental properties with highly leveraged money and are struggling to make payments on these properties. Many of these properties have been foreclosed on by lenders and are being resold at very reasonable prices. IMHO, the time to purchase most any type of real estate hasn't been this good in many years. If you intend to invest for five years or more, and are not trying to make a quick buck, the returns should be very, very lucrative. Quote Link to comment Share on other sites More sharing options...
EvilC Posted January 12, 2009 Author Share Posted January 12, 2009 Jon- Thanks for the comments and info. I am just like you were, trying to get rid of all my debt first before I start saving. I know a dollar today is worth more than a dollar tomorrow but I HATE having debt over my head. I am under the mind set that if I do not save and keep paying off my debt, by the time I am done.....I can start saving 80% of what I was spending on bills. To be honest lets say my loans were done today, I would have no idea what to spend 2k on a month! lol. Not even the Z! =P Jon, your point is well taken about saving. Mayolives- You are def right! This is a long term investment for me. I rather be "poor" for the next 5-7 years if the return is going to be nice I have my Z's to keep me "rich" = happy for now, if that makes any sense to you guys. Mayolives, any insider advise on maintaining a multifamily housing? Any questions/info you ask for besides credit scores? Also what is the largest number of units you would try to buy if you were buying your first apt building knowing what you know now? Thankz s130Z- Tell me about it! My folks wanted to move to NC a few years ago when the market was high. Houses in our area was going between 600k-700k and they would have made out well and be able to go down there and be ok. My dad has had his mechanic shop up here (nyc) for years and he was looking at places down there to open a shop. So by that time going back and forth for a year or so...the market for the houses fell as we all know. Houses now in the area are back down to the 450k-550k range. I am not sure how much further the market will fall put I def don't want to be one of the last to try and buy buy buy Quote Link to comment Share on other sites More sharing options...
woldson Posted January 12, 2009 Share Posted January 12, 2009 Homes are "cheap right now. Get one on a 15yr fixed, (since intrest rates are getting inpossibly low), pay it off promptly. As an assest it stands to acrue potentially alot of value because of buying so low. Also, this is a assest that can be used while it increases in value. If you get married, lose your job etc, you can deliver pizza and still stay in your home during any stormy conditions of the economy. (if paid off) People that lived debt free have the time to sit and wait out this storm with almost no worries. Outside of an emergency fund, once your house is paid off, dump into long term investmest, (market). Dave Rasmey has a plan that is unbelieveble fantastic. Don't give all your welth to the banks! I had a 65k morgate at 7.5% on a 30yr about 10 years ago, (refied to a 15 at 5.5 recently), at the end of the original loan, the bank would have made 380k or so if my memory serves me right. 380K!! in 30yrs! on 65k! Personally I would rather have that money instead of the banks! The intrest rate of a morgage works against your gains in investments. ESP at fist when your paying all intrest! Make your money work for you, not someone else. People that have money now are going to come out of this fat and happy!! Ones with debt,,,, well, guess that crap just was not worth it, now was it. (not investment debt, consering busness related items, like your education) Quote Link to comment Share on other sites More sharing options...
JIM73240Z Posted January 12, 2009 Share Posted January 12, 2009 I would go for the small multi family unit to get in the game. The prices will go down a little more i think, given the area, but the interst rates are insane right now. Also, paying off the mortgage is NOT always a good thing. If you have property, you have insurance on said property. If you rent out that property and someone gets hurt on the icy side walk and sue you, you have your banks attourneys and your insurace attourneys on your side. If you paid it off, its all on you. There are some asset protection seminars that roll through, go and check them out. They have some really good ideas on building and protecting your wealth, however much it may be. jimbo Quote Link to comment Share on other sites More sharing options...
woldson Posted January 12, 2009 Share Posted January 12, 2009 If your not making a morgtage payment, you can hire a even bigger shot attoney. besides you still should carry home owners insurence even after you are debt free! Quote Link to comment Share on other sites More sharing options...
woldson Posted January 12, 2009 Share Posted January 12, 2009 Debt to make money has showed it's true colors. Gold standard money standard debt standard This is how USA did it, they forgot one thing,, eventually your creit line runs out and you gotta pay! ^^ this is only to show that no matter how big, debt is debt. Be the fellow that is owed, not owning. Let the smuck that wants more pay out the nose given "small affordable monthly payments". HHHAHAHAHHAHAHAHAHHAHAHAHAH Anyone want to browwow a couple grand for lets say,,,,,,,18% You can pay it off in 50 dollor incraments over your lifetime. Just kidding, I could never so blegerently rip someone off. It's your money!!! make it work for you, not some rip off artist. Quote Link to comment Share on other sites More sharing options...
jt1 Posted January 12, 2009 Share Posted January 12, 2009 Borrowing money for an investment only makes sense if the investment returns more than the interest rate & expenses. Otherwise you're better off saving. A property isn't "cheap" unless you can rent it and be positive on the cash flow. Feeding it doesn't make sense unless value is going up. Be careful borrowing floaters or balloons right now. There is at least a decent chance you could be looking at 15- 20% interest rates in the next few years. Interest, taxes, and insurance eats at you profit every day, whether the property is bringing in money or not. Not trying to be negative, just a few things to think about. jt Quote Link to comment Share on other sites More sharing options...
Jon 74 260Z Posted January 12, 2009 Share Posted January 12, 2009 My strategy for RE investments has always been to never listen to advice from someone who cannot master the basic rules of English punctuation. And if they can't spell, run! It's worked pretty well for me so far... Quote Link to comment Share on other sites More sharing options...
lazycat5 Posted January 12, 2009 Share Posted January 12, 2009 Buy in a good location, I will pay for owning a mutifamily in a bad location for a long time. The more units the better. If you have a vacant unit the others will buffer the loss until you rent it. Sart saving now and pay your debt asap,even the mortgage. Quote Link to comment Share on other sites More sharing options...
DavyZ Posted January 13, 2009 Share Posted January 13, 2009 Clive, I certainly respect you for asking the question on the forum and listing your plan on the whole matter. I have been in the mortgage/appraisal industry for about 17 years. I sold my home in the SF Bay area for way more than it was worth and ended up moving to NC due to a job change, which allowed us to purchase two very nice homes outright. I happened to be in the right place at the right time, but having restraint in choosing our purchases was a wise thing because we basically have no debt now. So where am I going with this? Read on... Mayolives is basically telling you the overall status of real estate in general. He's right about the values being lower than they have been in years and that now may be a very decent time to buy. Jim brings up another very good point that you should consider before jumping the gun---"wait until the values start going back up before buying..." This is extremely good advice. I bought my first house in 1995, right when the values just started going back up after being stagnant after the real estate market crash in Dec 1989. My equity built up until my home had tripled in value in 12 years. We did out best not to leverage or refinance (unless for a significantly lower rate) or cash out---instead, we did our best to pay off the house. This resulted in a whopping amount of equity that allowed us to make the purchases we did in 2007. So what does this mean? Basically, you are setting yourself up correctly, but the timing should be right. We don't know what the housing market will do for the next few years. You may have 3-5 years before things start happening again (like what happened in from '90-'95). The economy may be stagnant or dip down further, but I doubt it will actually improve (I have no faith in our government to make choices that will actually help, no matter who is in office, but let me drop the politics!) so please take heed and be very patient with your purchase. Stay in the market on paper and look for the right opportunity at the right time. Make sure you do NOT leverage yourself too much or at all and see what you can do about paying off your bills/debt. You'll be freer and better off in the long run. Just my opinion. Davy Quote Link to comment Share on other sites More sharing options...
EvilC Posted January 16, 2009 Author Share Posted January 16, 2009 Davy, thanks for the great advise and insight. Here is something Dave (cygnusx1) passed on to me today: http://money.cnn.com/2008/12/31/news/economy/retail_closures/index.htm?postversion=2009010120 As lazycat said, buying in a good location is key to me. I am doing my homework on tha areas I am looking to buy in. I also try to use my knowledge from work to anticipate booming areas. JT- thanks for sharing. I def don't want to put myself in a hole and I have to know going into this that....there is a risk. If it was easy, everyone would be doing it. Quote Link to comment Share on other sites More sharing options...
EvilC Posted January 16, 2009 Author Share Posted January 16, 2009 Here is an example of a property I am looking at, I took all the info and made this spread sheet. This gives me a rough idea if something is worth looking at or not: excel sheet coming...can't load while I am at work. Quote Link to comment Share on other sites More sharing options...
EvilC Posted October 24, 2009 Author Share Posted October 24, 2009 Few months short of a year of posting this, I am happy to say.....I am $6k away from finish paying off my school loans($40k). In the past year I have still watched the prices of homes and buildings come down in the area. Just wondering if anyone in the past year has made any moves into the market or even out of it. I plan to really start getting out there again because I would like my first place to be a multi family place. I am thinking of living in the basement apt and renting out the rest if I can get a two to three family....of course with space for the cars I am also looking at commercial places with decent returns. The down payments are a killer but looking at options around it. Any new info would be great and I plan to keep this thread active enough so guys my age or younger can learn something from it and the older or more experience people can teach us! Quote Link to comment Share on other sites More sharing options...
woldson Posted October 25, 2009 Share Posted October 25, 2009 Are you married, kids? Quote Link to comment Share on other sites More sharing options...
EvilC Posted October 25, 2009 Author Share Posted October 25, 2009 Are you married, kids? Nope, 25 and still @ home. Quote Link to comment Share on other sites More sharing options...
wheelman Posted October 25, 2009 Share Posted October 25, 2009 The down payments are a killer but looking at options around it. This is where you'll get yourself into trouble if you aren't VERY careful. It's been said in this thread but not clearly, "cash flow is king", if you take on too much debt to get into a property you'll have very little if any positive cash flow, this can eat up your personal income, especially when you have one or more empty units, which will happen. I owned a 4-plex for 3 years and still own a single family rental house. I sold the 4-plex just as the rents in my area started dropping but still own the single family home. One thing that hasn't been discussed yet is the amount of time spent managing the properties. I did most of the maintenance and landscape work on the 4-plex. I was there every weekend mowing the grass and repairing the sprinkler system. We also did most if not all the required work after tenants moved out. You can hire out the work but thats money, remember "cash flow is king". Take and keep the attitude it's a business and run it as such. Tenants aren't your family or friends, they are buying a product from you, don't give it to them for free or at a discount just because they have a sob story, THEY WILL. Your descriptions of how you analyze the properties you're interested in is good. Be patient and look for the really good deals, they're out there but not easy to find. It's possible to make a lot of money in real estate but it takes alot of work. Edit: One more thing, find a good commercial property real estate agent. Don't use an agent that doesn't have commercial experience, they don't know how to analyze the properties and have a different focus in selling. Quote Link to comment Share on other sites More sharing options...
EvilC Posted October 26, 2009 Author Share Posted October 26, 2009 Wheelman you are 1000% correct. I will have to treat it all as a business. I am well aware but no first hand dealing yet of the time it takes when getting into real estate. Some people that I know say stick with commercial- less head aches, you can kick people out when rent isn't paid unlike res that takes months and much more. If I was to get into a multi-fam situation I am thinking 4-8 famiy will be worth the time and the return will be more. Down payment - cash is king.....correct. What is done is done. Some people said I should have not paid down my student loan and used the $40k to buy property others say pay it all off first then look. I am patiently looking to find that "deal" and during this time it gives me a chance to save more money. 20% down payment for me isn't going to happen if I leave me folks home. Avg single family home prices are about $425 and up and commercial even higher. Like you said, I will/am trying to do this without putting myself into trouble and don't want any property taking away from my income. Location, location, location is key! I try to read as much as possible and ask as many questions from anyone to try and be ahead. Everyone is trying to make money and everyone tries to sell you a dream. So thanks wheelman for taking the time out for posting yout replys. Quote Link to comment Share on other sites More sharing options...
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