Is this a good plan? - Posted by AM

Posted by AM on August 18, 2003 at 12:47:45:

Thanks

Is this a good plan? - Posted by AM

Posted by AM on August 14, 2003 at 12:33:09:

Is this a good way for me to start Investing or would anoter plan of action be better? (my goal is to eventually quit my job and work in REI full time): My plan is to buy my first property- a duplex that I will occupy and rent out the other half, and eventually continue to invest in duplexes as rental property.
I currently have excellent Credit, a full time job and $8,000 in the bank I can use. I am currently renting and this would be my first home. I live in the Minnesota area.

Advice is greatly appreciated.
Thanks
A.M

Re: Is this a good plan? - Posted by Matt

Posted by Matt on August 15, 2003 at 15:11:16:

Sounds like a great outline for a plan, but there are a lot of gaps you need to fill in to make it a “workable” plan. For example, your plan needs some quantifiable goals, such as how much income you need to support yourself and in what time frame are you trying to do this? “Begin with the end in mind” – as Steven Covey says in 7 Habits. Then, from there you can think about how many duplexes or rental units it’ll take to provide you that much income. Of course, in order to come up with those figures you’ll need to come up with some assumptions about rents, debt load, operating expenses, vacancies, etc. How will you find and aquire these properties? what target areas? what target prices? what other people will you need to know or hire to help you buy, fix and maintain properties and build your business? how will you get, maintain and get rid of tenants when necessary? All these questions will help you fill out your plan.

For example, “Lose weight” is not a plan – it’s only a dream until you figure out what you need to do to make it happen. “Lose 10 lbs in 3 months by eating less of xxxx and running on the treadmill 45 minutes for 4X per week” is more of a plan. You get the idea.

While you probably won’t have crystal clear answers to these questions right now, just the process of thinking thru these things and finding the answers will be an education. But the effort is worth it! Good luck!

yep - Posted by Anne_ND

Posted by Anne_ND on August 14, 2003 at 21:12:58:

AM:

You can get FHA financing for up to 4 units. I started this way (with a duplex) and got hooked.

Good landlording material: Louis Brown’s property management course has excellent paperwork. Also mrlandlord.com is a great website.

I recommend getting a good handle on the tenant/landlord laws in your state and finding an attorney knowledgeble in real estate- MN is a very tenant-friendly state.

good luck,

Anne

Re: Is this a good plan? - Posted by Ronald * Starr(in No CA)

Posted by Ronald * Starr(in No CA) on August 14, 2003 at 18:48:03:

A.M.–(MN)------------

It depends upon how long the “eventually” is. If you mean 10 or 15 years down the line, that plan is very sensible. I started with buying a four-bedroom house and renting out three bedrooms to graduate students. Eventually moved out and rented it to families or other people. Refinanced to get money for other investments.

However, if you mean three or four years, it is unlikely that the buy-hold-rent program will do it for you. It is not a very aggressive way to invest. It does not make a lot of money for the first decade or more of holding. So, if your time horizon is shorter than say 12 years, you probably will want to start doing real estate merchandising–buying properties at below-market prices and selling at close to market prices as soon as possible for profit.

Good InvestingRon Starr*********

Yes Again - Posted by Maxx(TX)

Posted by Maxx(TX) on August 14, 2003 at 15:20:09:

Ken in SC is right. Get into your own property first. That is also the cheapest way you can fund your property is by “Owner” occupying. Rates is lower too. Maybe your tenant’s portion could cover part of your mortgage too.

When you are renting, you are still on the other side of the equation. I can see that in no time, you will be off investing into riches…

Good luck.

yes - Posted by ken in sc

Posted by ken in sc on August 14, 2003 at 14:38:27:

That is exactly the way I started. I got an FHA loan and therefore only had about $2500 invested in the duplex. I was young, single, and had a roomate plus the tenants in the other unit. It cost me basically nothing to live there. I slowly worked on the property over 3 years, but mainly I had bought in a good area so the value went up. After 3 years, I sold it and the money I got from that, $30,000 or so, is all the downpayment money I ever needed. That money was enough for me to accumulate many, many houses worth several million dollars. And the thrill of getting that $30,000 check at closing was really what spurred me on to keep learning and investing. I had never had that much money in my life! So, yes buy the duplex if it makes sense - in other words, if you could leave town in a year and hire a management company and have the cash flow still work out. If you don’t know the answer to that question, post again with specifics and I am sure people will be glad to help.

Here’s to the first step in your investing career!

Ken

Re: Is this a good plan? - Posted by AM

Posted by AM on August 18, 2003 at 12:50:00:

Thanks so much for your reply. I will take your suggestions in consideration

Re: yep - Posted by AM

Posted by AM on August 15, 2003 at 12:11:59:

Thanks so much for the info, this has been a confidence booster.

Re: Is this a good plan? - Posted by AM

Posted by AM on August 15, 2003 at 12:19:56:

Mr. Starr
Thank you for the advice, it is very much appreciated. A question I have is what about selling the duplex after 3 years or so in hopes of a profit and using that as money for other investments. (rather than holding for 10-15 years)?

Thanks again for your expert advice.

AM

Re: Yes Again - Posted by AM

Posted by AM on August 14, 2003 at 17:41:23:

Thanks Maxx in TX, sounds good!

Re: yes - Posted by AM

Posted by AM on August 14, 2003 at 17:37:20:

Thank you so much for your insight, it sounds like you were quite successful in your duplex experience. I am excited to make that first step. Could you recommend a good book on landlord(ing), or duplex investing?
Thanks again,
AM

Re: Is this a good plan? - Posted by Mike G

Posted by Mike G on August 15, 2003 at 16:25:25:

Keep in mind that a prudent real estate investor never “hopes” for a profit. If you plan on selling in 3 yrs for profit, you should buy under market value today, otherwise you’re really gambling not investing. Keep in mind all the closing costs you will incur. Even if the property does appreciate, it will need to do more so than your closing costs on your purchase and subsequent sale…and the shorter your turnaround time, the more critical this becomes. On the other hand, you will certainly learn a ton, and it’s hard to put a price on that.

I think your purchase is a good idea for the learning experience alone. However, I’d run a few scenarios assuming the property doesn’t appreciate, you have to make repairs every year, your other unit is vacant for awhile, you pay normal closing costs on both purchase and sale, and see if you can handle this financially. If you can, go for it. Otherwise, reconsider.

Re: Is this a good plan? - Posted by Ronald * Starr(in No CA)

Posted by Ronald * Starr(in No CA) on August 15, 2003 at 14:17:56:

AM----------

You ask: “… what about selling the duplex after 3 years or so in hopes of a profit …”

What if the property drops in value? Are then going to sell it? What if it does not increase in value, just stays worth as much?

I suggest you read my advice for beginners. Put “beginners success” into the archive search function of this main board of the CREONLINE.COM website.

Are you buying this property for cash flow or appreciation? When you ask the question, it sounds like you are hoping for or trying to get appreciation. If are buying for appreciation, this is not the right way to go about it. If you want appreciate, buy properties at bargain prices. Then resell immediately. This is the subset of appreciation known as “instant appreciation.”

Get clear on what you. Then buy the kinds of properties that get you want you want, in the locations that will deliver that, using the investment strategy that works.

If you want to hold for cash flow, don’t sell in three years. Hold until you die, 50 years from now. Or something close to that.

If there is enough appreciation that you can refinance out money for other investments, that is ok. There are then no capital gains taxes to pay on gains.

Good Investing***Ron Starr

recommendations - Posted by Christopher - WA

Posted by Christopher - WA on August 15, 2003 at 12:45:58:

Another excellent book on landlording is
Managing Rental Properties for Maximum Profit by Greg Perry. Everyone I’ve shared it with has been thrilled with it.

recommendations - Posted by Ronald * Starr(in No CA)

Posted by Ronald * Starr(in No CA) on August 14, 2003 at 18:43:25:

AM--------------

“Landlording” by Leigh (sounds like “Lee”) Robinson and John T. Reeds book on property management–www.johntreed.com website.

Good InvestingRon Starr*****