Real Estate Tips
You have to kiss a lot of frogs to find the prince or princess. i.e. You’re going to look at a lot of property to find one that works…..accept it.
Owner occupying a multifamily building is a great way to start out in investing.
You can get into up to a 4 unit for as little as 5% down if you live in it.
If you put down less than 20% you are going to get hit with PMI (Private Mortgage Insurance). It can be expensive, especially on a FHA Loan.
The FHA loan programs are now charging almost 2% up front as an initial cost for PMI and a large monthly fee for the life of the loan. It can add hundreds per month completely destroying your cash flow. Be sure to figure it into your costs.
Talk to a lender about the fees you should expect to pay, closing costs, etc before you start looking for a home.
Don’t sign anything with a lender, just meet with them and see what their terms might be. If you sign anything it will authorize them to pull your credit. To many people pull your credit and your credit will drop. Not a good plan if you are on the edge of qualifying at all or knocking you down into a more expensive category.
Be sure to check with a least one mortgage broker. A mortgage broker works with multiple lenders and can place your loan where they can get you a better deal.
Sometimes your credit unions can get you better rates than commercial banks.
Commercial bank lenders can only sell their own bank’s products or loan programs. That is why I always check with my own financial institution and also a mortgage broker.
On one of my loans I went to Wells Fargo and my mortgage broker. Wells Fargo was giving me a fair amount of grief so I went with my mortgage broker. ….who later sold the loan to Wells Fargo. Sometimes you simply have to shake your head and laugh at the craziness of it all.
Be prepared for a financial proctological exam when you apply for a loan. Just accept it. Some banks are notorious for asking for the same paperwork multiple times and often just before closing. When you get your paperwork together for the initial info dump on the bank do not put it away, they will usually ask for something again.
If you are thinking about buying a property….stop spending. No new cars, boats, motorcyles…nothing with a payment or you can cut your own throat.
If you have a bit of a financial windfall you should buy property, and let your property buy your car or other toy. When the car or toy is paid for you still have the cash flowing property rather than a heavily depreciated asset (a term I use very loosely)
It is never too late to start investing. That said it is much easier if you have more time on your side so start now and let it grow.
When you buy your first property either live in it and let the tenants pay for the building or if you are doing a straight investment by local where you can watch your property. Don’t buy somewhere you have to drive an hour or more to get there. You may not think you will have to do it often but trust me, starting out you will.
VA loans, if you are a vet, take awhile to get but you can get a zero down loan. Zero down does not mean cost free but your upfront costs will usually be in the range of 1% borrowed.
The VA program is pretty liberal in that you don’t have to have served for a real long time on active duty. If you every served be sure to check on the program
VA loans will take longer to get than other types of loans but they are often worth the wait.
If you lived in what is considered a “Rural” area there are often special loans available called Rural Development loans. You will be surprised what qualifies as rural so be sure to ask your lender
When we are talking about real estate, financing, accounting and the myriad of other topics surrounding real estate remember that rules vary from state to state and based on your personal situation.
If you are not going to live in a property you will almost always have to put down 20 – 30%.
You have to live in a property a year as an owner occupant to avoid trouble with the lender and government. Lying will get you in major trouble. It is easy to do it by the rules so it makes sense to follow them.
It is not if but when you make a mistake. It is not the mistakes that are important it is how we respond to them and work to avoid the same mistake in the future.
If you are afraid to make a mistake you will not ever get started in real estate. The reason I recommend starting with 4 units and under is that it is harder to make a mistake, and when you do, less expensive to correct.
Real estate is a game of inches. It seems you are making slow progress but that progress accumulates and begins to perpetuate itself over time.
Use patience, be smart on the purchases and it is hard to fail in real estate.
People fail in real estate because they become impatient and take unnecessary risks. Don’t take a risk where if you are wrong you are bankrupt.
Cash flow is king. Unless you have money to burn (never) don’t buy property that does pay for itself. If you are living in it a small negative cash flow can be OK. Consider a roommate and put money in your pocket while the building pays for itself. A few hundred a month may not sound like much but it adds up.
If you can net a few hundred per month on your building, and you do it 10 times over the next 5 years, that is 3K per month. Depending on your lifestyle that may cover much, if not all of your fixed costs, car, home, insurance, etc. Nice to know that is covered every month with cash flow increasing yearly.
If you are living in a multifamily you own, and it is paying you on top of it, you have a great deal.
If your owner occupied multifamily isn’t paying you, and you can stand a roommate, get one and charge them enough so that you do cash flow.
Even if you have a small negative cash flow on a property you live in it may net to no cost to you, when you factor in depreciation on the units you don’t live in.
If you’re looking for owner financing you may want to work on a pleasing personality. You stand zero chance if the owner thinks you are a jerk.