I want to start out by saying, we personally do not finance our investments. We believe if you can’t do it with cash, you need to save more. The way we are able to do this is we worked very hard to become debt-free. Because of this, all of our income is now working for us – rather than us working to pay off debt. Keep in mind investing in rental property, flipping, etc. is not really a get-rich quick thing. This type of investing is just like your retirement investing. Slow and steady wins the race. (No matter what you may read).
Before you find the perfect property, you do need to know how you are going to pay for this property. Because there will be an asset attached to this property, you can get financing. However, you need to be prepared to pay a higher interest rate. Other forms of funding can be found at local Community Banks, Credit Unions and personal lines of credit.
Please keep in mind, with any type of loan you need to make sure your debt-to-income ratio is not too high. Keep in mind, it is very unlikely whatever property you purchase will be ready to re-sell or rent immediately. There will be repairs (there are always repairs). When we were purchasing our property, I estimated it would be eight weeks before we would have it ready to rent. This means that particular piece of property it is an “alligator” for at least eight weeks. By the way, an “alligator” is a piece of property that just sits there and eats money.
Knowing how much to borrow is also important. You do not want to get half way through your project and run out of money. Real estate investing is hot right now, and I can’t tell you how many houses we see around our community where someone starts and then simply does not have the means to finish. There is nothing wrong with starting with a small project first and building up to the big money projects.
Below is back side of new property.
We all watch those shows on HGTV showing how easy it is to buy, renovate and sell a home. Now you think YOU want to be a house “flipper,” a landlord, or whatever. This is all about the reality vs. TV.
We are going to start by talking about finding property. It is nothing like what you see on TV. You don’t just look at three properties and pick one. To find the right property, in the price range you are going to look at 50+ listings. By the way, the 50+ number is conservative. When we are looking at properties, we look for a good deal. This means in many cases we are looking at bank owned homes, or homes sellers are trying to get out from under. We try to find houses we can get for 70-75% of their appraised value. Because of the current market, this does mean we really are going through a lot of listings.
We started our search by using Zillow.com (all bank listings), Hudhomestore.com (HUD listings), and Homepath.com (Fannie Mae listings). We would sit down on Saturday morning and make a list of all of the houses we thought looked promising. We would then get in the car and do a drive-by. The drive-by is very important, as it allows you to see not only the condition of the house, you also can see the neighborhood. While on these drives, we looked for any other houses we may have missed or empty non-listed house. We would write these down to research.
When we would find a house in hour price range and in the right area, we would contact our Realtor to really take a look at the house. I cannot emphasize enough if you are new to this, you need to use a licensed realtor.
In early Spring we found a house meeting all of our criteria. The listing price was decent and in our price range. The neighborhood is going through a re-generation. Although the house had been empty for 18+ months, it did not appear to have any structural damage.
We made an offer. The seller REJECTED our offer, so we walked away. We felt we had made a fair offer for the condition of the house. Although we were disappointed, we knew there would be other offices.
Two weeks later (near the end of the month), the seller came back and accepted our offer if we would pay some of the closing costs. We accepted and waited…..
Next Up Financing