That business entity stuff isn't useful for your 1st property.

Just go to your REI clubs, google for them, ask around, and start looking at properties. Talk to agents to send you some listings. Talk to investors there, REI clubs will always have someone willing to help.

Don't waste your time talking to and paying lawyers when you have no idea what questions to ask.

That's why I'm asking you guys who, and what, I should be asking...

I'd ask people at the REI Club, if I was in one, but I'm not...yet, which is also why I'd like to know the best way to find a good one in the Dallas/Ft Worth area. Just google around at go check them out?

I have some agents I know putting together some listings for me, and I've also already started looking myself. However, some of the properties I'm looking at fall into the commercial category, in which case, at least afaik, I would need a business loan, and again afaik, to get a business loan you have to have a business.

Don't get me wrong, I'm not dead set on any of those properties, but if I find one that is a great deal I'd like to know how to move forward. Like I've mentioned before, I've got both a private and a business banker that are willing to play ball, but that's dependent on me getting things in order(finding a good property, setting up a business if I need too, etc).

For my first property I'm looking for at least a Duplex, and up to 10 units. My logic being that having multiple units helps when there is a vacancy, and I'll gain experience faster with multiple units.

Just want to point out the gap in logic here - you don't have any experience, but you are willing to buy a 10 unit property. It's true that you'll learn faster, but that's because every mistake will be that much more painful financially. Granted, it all depends on your situation, but in general you probably want to minimize the cost of your mistakes.

Lenders are not going to be thrilled about working with a guy with 0 experience, either. Credit markets are not particularly loose these days.

You should slow down. I think first step is to get a couple small deals under your belt, a duplex or something that could use a little rehab.

There is a place down the street from me ( 2 minute drive) I am looking to buy as a rental. It's a 2 family home in a nice neighborhood.

It's in the 95-110k range...I'd expect to pull $1400-1600 a month combined from the 2 units. I have not looked at the house yet, doing it tommorow, but it looks relatively nice in the 5 minute online video posted and in pictures.

I would not be taking a mortgage out for it, I will likely pay for it with cash. I will not be living at it, however I will be managing it myself.

Basically looking to diversify my investments a little and get some more monthly income coming in. Possibly expand to another property in a few years if this one works well.

Anyone have any tips or another forum or whatnot to browse about rental properties and such.

I read through the last 100 or so posts in here...Ill spend some time reading from the beginning later.

Yeah read this thread before you buy.

You're right, of course I'd want to minimize the cost of my mistakes. There's a gap in your logic also though . Just because I'd be managing, potentially, 10 units, instead of 2, doesn't mean the only way I'd learn faster is only through making mistakes. You're right though, if I made a big mistake, or didn't quickly correct my mistakes, it would hurt more.

However, I've read multiple books on being a landlord( including Landlording by Leigh Robinson) and filled a spiral with notes, I'll be picking the brains of fellow landlords/investors as much as possible(both family friends, you guys, and those in the REI Club/Landlord Association), as well as being sure to learn as much of the laws pertinent to my area as possible(and consulting a lawyer if need be). So, as long as I don't get stubborn, or I'm not forced to make a decision on the spot regarding something I haven't a clue what the right thing to do is, my mistakes should be small and infrequent, no?

I'm by no means set on 10 units, and will most likely be going with something between 4-8, but my min/max is still 2-10.

I know lenders aren't excited to work with me, but as I've said, I've got some who are willing, surprisingly enough.

I'm also in no rush, and am very unlikely to purchase a property before the year is over(especially since the holiday season is right around the corner and any vacancies will be harder to fill). I just want to find out the answers to my previous questions so I can continue to learn and get closer to being prepared to take the plunge.

I learn best through debating, so please don't be offended or annoyed with me. I'm grateful for your opinion, as well as any others I can get.

A very general rule of thumb for smaller (less than 20 units) properties is that your expenses plus your vacancy/concessions plus your capital costs will be somewhere around 50% of your gross income. In real estate terms, your net operating income (NOI) will be about half of your gross income.

It could be a bit more than 50%, it could be a bit less than 50%, it could certainly be more or less over a short period of time (less than 10 years), but over the long-term, when capital expenses start to add up, vacancies and evictions have had a chance to occur, etc, you can expect somewhere on the order of 50%.

So, based on your estimate of $1400-1600 per month in gross income, you're NOI is probably somewhere between $700-800 per month, or about $8400-9600 per year. For the sake of this exercise, let's assume your NOI is $9000/year.

Once you buy the property, you may have some fix up costs and will certainly have some closing costs, plus things like inspections, appraisals, etc. So, let's assume the total purchase costs are on the high end of your range at about $110,000.

So, you've made a $110,000 investment to generate about $9000 per year in cash-flow, which puts your cash-on-cash return at about 8%. That's not horrible, and assuming you do the property management yourself, you may be able to get that number closer to 10%, but in many markets around the country, you can probably find better deals.

Some recommendations before you buy:

- Make sure you get an inspection, so you're confident about any repairs or deferred maintenance items you'll eventually need to address;

- If there are currently tenants in the property, make sure you get a copy of the existing leases, and verify if their current rent is around market rent (so, you'll know what to expect when their lease is up);

- Make sure you get in writing the fact that the current owner will transfer the security deposits for any existing tenants;

- Find out how the utilities are metered for the property and who pays for what;

Depending on your personal financial situation, you'll either want to speak with an attorney, a CPA or both to determine the optimal business entity and get it set up. If you have significant personal assets, definitely speak with an attorney about asset protection. And if you don't have many assets, you can probably get away with just speaking to a CPA about tax advantages of different types of entities. Your CPA should be able to help you set up the business as well.

Some people have suggested not worrying about setting up the business until after you start buying property, but that may be bad advice, depending on where you live, how you plan to finance and what type of investing you'll be doing.

If you're planning to hold properties long-term, there are some states where it's expensive to transfer real property between owner (transfer taxes), and if you buy in your personal name and later decide to move title under a business entity, it could be expensive.

If you're planning to flip/rehab houses and don't have significant assets to protect, you can probably get away with not having an entity for your first couple transactions; after that, having the correct type of entity can save money on taxes.

If you say more about what type of investing you plan to do, perhaps we can make more suggestions on how to build your investing team?

Generating 15% return on your investment isn't too difficult these days, depending on where you live and what level of knowledge you have about real estate and finance. For someone who is brand new to real estate and who wants a mostly passive return, it might be difficult to get 15%, but for someone with some experience and/or someone who doesn't mind taking an active role, it's not too tough.

My recommendations on things to consider:

- Depending on where you live, you may be able to get 15% cash-on-cash return from buying decent single family homes in decent middle-class neighborhoods and renting them out. If you are willing to do your own property management, it's much easier to make these types of returns;

- If you have experience in evaluating deals and have a basic understanding of finance, the easiest way to make that type of return (and plenty more) is to lend money to other investors. If you're conservative in your lending standards, can evaluate the value of property and are careful with your agreements, you'll make plenty more than 15% without too much time or effort;

- If you are experienced with real estate and have time to invest, rehabbing/flipping houses may be a great way to generate two or three times this return, depending on where you live and your ability to manage a business.

Hey, first off, as has been said before, this thread is F%$%ing amazing. Thank you to everyone who has helped here.

On to my question. Right now, I have very, very low capital. However, there are some deals on craigslist for garages (the one I'm looking at now is roughly 2600 feet). Is there normally a market in either a) flipping the garage if its in bad enough shape? or b) renting it out?

I am in the process of reading this thread. It's unreal how much info is in here.

I have joined a real estate club and I've been to one meeting. Going to another one Wed. I also asked the guy that runs the meetings if he would let me buy him lunch so I can pick his brain a little. He has accepted which is huge because he basically did what I want to do. (i.e. bought enough properties that he quit his job) I hope to buy my first 4 plex in the next 2 months.

I am super nervous about buying my first one but I am sure that's standard.

Good for you. I'd write down a bunch of questions beforehand and treat this first meeting as if you were writing the guys bio first, and his opinion on the current state of RE investing second. Open ended questions to start, save the specific questions for last. Try to get an idea of his personality, history, investment philosophy, and the traits he thinks are mandatory to be successful.

Not saying you should patronize the guy but am saying you should try to wring out why he's been successful. After the meeting you can extract the nuggets, then meet with another investor and do the same, keep repeating until you uncover common themes...while simultaneously building a nucleus of mentors. Believe me, if you show desire and ambition, the proven investors in your club will open up to you.

It wouldn't be fair to him, or you, to ask if you should buy the 4-plex. He probably knows less about you than you know about him. A fair question would be to ask him to analyze the deal and have him baby step his thought process, ie why is it financially good/bad, what are the potential ownership pitfalls, what he'd do to add equity, what type of management would be required, possible exit strategy, etc.

If you derive most of your income from owning rental properties and a really modest # in casual gambling winnings , are you required to pay SSECURITY TAX?

Lend out Hard money to investors. 15% return on cheap REOs with 40% downpayments from the investors on already discounted properties. Essenstially no risk.

I made 3 hard money loans myself this year and praying and hoping they default. If not I get 15%. Easy game. PM if your interested in hearing more.

I like Spex X's recommended model of: buying properties that are undervalued, forcing appreciation, refinancing & holding( or selling depending on the situation), and then repeating the process.

I'm not sure I like the idea of trying to flip houses with things the way they are right now, and I'd rather wait to explore that option until I have more experience anyways as my understanding of flipping is it's a much more time consuming and risky venture.

I'll get to finding and attorney and CPA ASAP, thanks for the help.

This strategy is great for those of us who have a good bit of cash on-hand, as well as good credit and income. For anyone else, this is going to be very difficult, as the refinancing landscape these days is pretty tough. If you attempt to refinance within 6-12 of purchase, the LTV will be based on the purchase price, not the appraised value. So, if you want to refinance within 6 months, be prepared to still have 30-50% of your own cash in the deal.

As an example, if you purchase a property for $50K, put $10K into renovations and then refinance in less than 6 months, you'll likely only be able to pull out about 70% of the purchase price, or about $35K. In this example, you'll still have $25K of your own cash in the deal.

If you have plenty of cash, this may be able to scale; otherwise, not so much.

The reason I say *MAY* be able to scale is that the next issue you'll face is the institutional limits placed on conventional lending. Specifically, no lenders will allow you more than 10 conventional loans these days, and most lenders won't allow you more than 4. So, if you want to scale above 4 (or perhaps 10) total loans, you'll need to find either a portfolio lender or a private lender. Portfolio lenders will go above 10 loans, but they'll want to see a decent amount of skin in the game, and will require a personal guarantee, so again, personal credit, income and assets play a role.

Private money is probably your best choice if you want to scale a rental business, but few private lenders will lend to you if you don't have a solid track record of success in this business. Plus, private money rates will be significantly higher than portfolio or conventional rates. Also, very, very few lenders are going to want to give you cheap money (less than 8% interest) for 20-30 years, as no private investor investor is going to lock up their funds for a long period of time at a low return when everyone expects interest rates to rise over the next 5 years, perhaps significantly.

So again, institutional lenders are your best best, but you need the cash, credit and income, and you will hit your maximum number of loans pretty quickly.

What many of us are doing these days is flipping houses to generate income and then plowing that income into longer-term rentals. Personally, I'm plowing my flipping income into lending, where the money is much easier and returns are much higher, but that's just me.

Anyway, my point of all this is that the purchase, rehab, refi and rent model is a good one, but the financing details these days are MUCH tougher than most people realize, and if you don't have a plan, you'll quickly find yourself in a tough spot.

Can you not share in the thread for everyone? I for one am very curious, as I'm sure others are.

I was already somewhat aware that I could quickly run into a ceiling with standard bank financing, but it's nice to know it for sure. I'll be sure to have multiple backup methods of financing in place though, never fret.

I appreciate you taking some time and sharing your thoughts. If you'd care to share more about lending, I'd love to hear more about it!

Assuming you have read this thread in its entirety imagine a great long term rental property that has a 12% cap rate. This property might be a foreclosure listed for 50k. This property is being bid on like crazy by cash investors but one investor ends up with it for 54k. Even though he represented himself a cash investor he only has 40% to put down and will go to a hard money lender for the rest. So assume the investor brings 20k to closing and the lender lends 34k. (ignoring closing costs insurance etc)

Now as a hard money lender you loan the investor the moneythe 34k with little to no underwriting process for 15% interest and a 1-2 yr balloon on the loan. If the investor defaults it would be really easy to resell the property for 50k again if the demand is that strong for it. Of course you would have to subtract foreclosure costs and unpaid property taxes etc but there would most likely be plenty of profit on top of the 15% you were earning while he was paying.

In my experience the loans with this much down payment and underlying cash flow the default rate is less then 2% over a sample size of a couple hundred loans i have been involved in over the past few year. (only made 3 loans myself though)

I have read the thread, twice now seeing as my first read through was in October of last year and I thought a refresher would be a good idea.

How risky is hard money lending for a newbie investor? I plan on learning about it anyways, but I'd like to know how high to prioritize it. I know you said "essentially no risk", but that doesn't mean no risk, and I want to make sure the lack of experience I, and some of the others, currently have is being taken into account in your assessment.

As always, thanks for sharing!

Use your noggin. Being more highly leveraged = more risk. Taking out loans with higher interest rates = more risk. Your margin for error shrinks the more leveraged you are and the higher your debt service payments. As a novice investor this is not something you want, especially if complex renovations are involved. Could be a possibility if you have a home run investment, but short of that I'd stay away.

On the other hand, gotta get started somewhere. If you have the time, a breakeven project provides invaluable experience.

I'm a huge fan of hard money lending, but for your first few loans I would highly recommend going through a broker. Go to a local real estate meeting and find an established, licensed, hard money broker who is well respected with lots of strong references. A good broker will connect you with a responsible borrower and will walk you through the lending process step by step. This is what I did to get started about a year ago, feel free to pm me if you have questions down the road.

Lol, don't insult me...especially undeservedly. Obviously I was skeptical of his low risk assessment for newbie investors, otherwise I wouldn't have asked. Also, how would I be highly leveraged if I'm the one making the loan? You seem to have misread things...

Sounds good, thanks a bunch!

Do any of you use land trusts to protect the properties you own?

Do any of you use any specific REI software programs to help with assessing investments and/or run your business?

Heyokha, I apologize. I did misread your post and thought you would be the borrower. However, the same principle holds true. If you expect a higher return on your loan you should realize that this corresponds to higher risk. If you don't know why you're achieving a high return, than you need to figure that out.

That's what I figured, but wanted to double check to make sure of.

While this is true is most circumstances in today's environment it's not always the case. I feel that good hard money loans are actually less risk then the loans banks are making right now.

If the hard money is underwritten correctly you should hope the borrow defaults. The last loan I did the only info I had when I agreed to the loan was the guys name, property address, and downpayment. I never even went to the house. I am hoping and praying he defaults. Given he did buya house for 60k and put down 40k which is a somewhat rare LTV loan but I'd rather be in my situation then a bank loaning 80% LTV on full retail value of a house. Even if he only put down 25k on a 60k purchase price I'd like my loan better then a bank loaning 80% with full underwriting.