I have made money in real estate speculation during the boom, it was not easy money. I currently own a warehouse which we lease out, I can make more money on the web without the aggravation property taxes, building inspectors, difficult neighbors, insurance, and ……

I agree! You need to have several sources of income and never settle on just one. So when something happens to one of those sources, you’ll still have others to rely on!

This is my first time to read stuff about real estate investing. I’m always been curious about it but I am quite clueless when it comes to anything related to finance, business or investments. I actually intend to take a course on investments and maybe i could start doing things like these.

The piece you are missing is that hard money lenders offer 70% of the After Repair Value. That means if your 60k purchase will be worth 100k after repair, you will get 70k on the loan, which will cover purchase and most of the repairs.

Brian,

Thanks for the post and thanks for sharing. Wifey and I bought a vacation rental property as our first jump into real estate. The cash flow is there, not to mention the free beachhouse, but i think the next calculated risk is in a bread and butter property or two. Now, i have seen the main obstacle right now as being the down payment and loan because the banks want 20-25% down. I read your Trinity post about wholesalers and rehabbers. I want to enter the game in the rehabber circle but I am still having a hard time understanding how the hard money circle really works? Say I have $15,000 to put in play for a bread and butter that i can pick up for 60K. Banks require 20% down or 12K which leaves me tapping credit to make the rehab happen. There is not enough cash flow to pay down the credit in any reasonable amount of time. I don’t want to touch the 6 month emergency fund we have either. Also the banks want more down if I try to purchase as an LLC. FICO score is no issue whatsoever.

Thoughts?

Killer posts on here by the way. I’d be happy to share your blog.

You are right: homes at that price level will not cashflow. Most of us stay out of the big cities for our “bread and butter” deals. Maybe you can find something closer in the suburbs.

I think you are at the perfect time to start thinking about RE. I started buying investment houses before I bought a personal residence.

Realize that buying a house for yourself is a big expense, buying a house to rent out actually makes you money.

You’ll need your job and credit to qualify for loans, so don’t drop those.

Hi, Brian. I live in Toronto, and the houses here are crazy expensive. Single family home or typical bread and butter home is mostly $300000 to $500000, and only tiny fraction is $200000 to $300000. Although I am very attracted by the idea of real estate investment for passive income, I don’t know if it can earn cashflow each month. The rent for a house should be maybe $1500 or maximum $2000 here. Besides, I just graduated and have been at a job for only 2 months. Does it make financial sense for me to start thinking about real estate investment, or should I wait until I have a stable job, okay salary, and first home to live in?

Lots of great questions. If I were you, I’d get involved with a local real estate investor group to find the tips and tricks in your area.

Tenants are not hard to come by in this economy. Many people are returning to rentals as the banks won’t give them loans on houses.

You want to stick to the most “in-demand” market segment, which is 3/2/2′s worth $80-$120k that rent for $1000 or less.

Then, we put the best product on the rental market for the best price and they rent quickly with good tenants.

As for finding the deals, that’s where networking helps. Find local wholesalers that are finding these deep deals.

That makes sense… thanks, I’m glad I asked instead of drowning in my own inexperience.

Yes, bread-and-butter… I’ve heard you mention that before and it sounds very ideal so long as I do right as you said of screening applicants. What would be the best way to find an applicant? I imagine the newspaper classifieds are not very effective, don’t get me wrong though, we can read here in East Texas haha.
The other day I saw a condominium for $36.5k that had new paint/carpets/vinyl in ’08. I realize that it only takes a near five years for things to happen on the inside, but it’s location is prime in my opinion, it’s very close to the university which gives a good opportunity to have applicants quickly, the students are always looking for places like this… it just makes me wonder if sticking with a B-A-B home where the applicant would most likely be more reliable as a more mature adult compared to a possible unreliable party-animal.
And you said 50cents on the dollar… should I watch a property for a possible price drop or is there a way to check it’s actual price as a whole… sorry to be so uninformed.

I don’t recommend speculating on land because there is no telling how long it will take for you to get your money back out. I meet investors every day that have money tied up in land and they can’t get it out.

Really, the best thing to do with $10k is to buy a bread-and-butter single family house (3/2/2 $120k or less) for 50 cents on the dollar and rehab it up to it’s full value. Never be “all in” for more than 70% of the after-repair value. Rent it out for 1-5 years and enjoy the $200+/mo. cashflow. Sell it after 1-5 years and collect $30-$50k depending on the market.

You will have tripled your original investment.

I agree with the person above, “Div. Gro. Inv.”, about there not being very many other RE investors to learn from, especially when others don’t want competition. I really appreciate what you’re doing for the community by offering us such intelligent and experienced information here.
I was wanting to buy a small area of land for under 10k and keep it for how ever many years till it appreciates enough in value and then hopefully resell it. Our town is expanding and I imagine it wouldn’t be too much of a problem to do so.
The thing is, should I have a set target for the best “kind” of land?
Involving: water/electric being available, cleared land, location within or out of city limits, etc.
All in all, is this really a good idea since there will not even be a building/house of value involved?

Thanks for your time

The credit crunch has meant that we have less competition on many of our deals. It also has sparked a movement of alternative funding such as owner-financing and private lending.

Interested in your thoughts about how the credit crunch forces changes in strategies. I’m intrigued with acquiring land in growth areas like Texas that don’t have a huge overhanging surplus to be in the right place when credit health begins to return. I know it’s not a cash flow focus, but as they say — ain’t no more of it being made.

Equity is tough to find these days. You are right, Cash Flow and Location are very important.
I enjoyed your article.

Thanks for commenting back. I like your blog and I am looking forward to learning more about real estate. I have analyzed a few properties, but I don’t really know any actual experienced real estate investors to learn from. Most of the real estate investment information on the internet is sales pitch to purchase expensive courses. I do appreciate what you are doing, so I will check often for updates.