Young Newbie Needs Help/Loan Question (long) - Posted by James

Posted by Anne-ND on July 04, 2001 at 12:45:24:


Since no one else has jumped in here, I will. I think you’re in a great position to start real estate investing. Your age will only be a detriment to your career if you let it be.

Just a few things I’d suggest are that you decide to use your money for education and marketing, NOT for down payments. Also, while you have that money, go to a bank and get the biggest line of credit you can. That might mean you start off with a secured line of credit, and work yourself into an unsecured line. Go to several banks near you and find out what they can do for you. Small banks with whom you can form a personal relationship may be the best place to start, but don’t avoid the big banks either. They all can play a role in your investment career. And they all want to lend you money. You just need to find a smart and creative banker- they do exist. I also suggest you contact Ed Garcia (see the financial newsgroup).

To get your REI career started, you need to find motivated sellers (here’s where the advertising comes in) and then you should try to do no-money-down deals like lease-options and/or subject to deals (that’s where the education is needed).

Read up on these subjects on these newsgroups before you decide on which course to buy- personally I suggest Bronchick, Kaiser and Louis Brown. There are plenty of good inexpensive books out there to start with too. The archives on this site are an incredible resource. Post your questions here when you get them.

Creative real estate investing is a beautiful thing. Good luck, and welcome to CREOnline.


Young Newbie Needs Help/Loan Question (long) - Posted by James

Posted by James on July 03, 2001 at 23:13:00:

I am a 19 year old who is getting ready to make a leap into real estate investing. I would like to purchase a two-unit property to rent out, and I have looked at many in my area and have found several nice ones that would cash-flow well. However, I am worried that my age/work situation will prevent me from obtaining decent financing. Here are the details:

  1. I have about $20,000 cash availible for a downpayment.
  2. Although I have limited credit history (just one Visa
    card), I have always paid on time and in full.
  3. I earn approximately $8,000 per year from a part-
    time job. However, it is cash under-the-table and is
    not reported for tax purposes.
  4. I have no debts other than what is on the credit card
    at the moment and has not been billed yet (probably
    $400 or so).
  5. Total net worth is around $35,000.
  6. My parents could probably cosign the loan (perfect
    credit and 100% equity in their house) but I would
    hate to go this route.
    From what I have read, mortgage companies don’t like people without a “steady” income or a extensive credit history. Even if I could find a company that would accept me, I’m not paying some ridiculous 15% interest or anything like that. I could easily afford the 20% down on a $75,000 property, and if I had a prolonged vacancy, I could easily cover the payments from my savings. However, I doubt the mort. company would understand this. Can anyone make a suggestion as to how to go about this situation?

Thank you very much in advance. Judging by the helpfulness of the posters on this board with the questions of others, I’m sure someone can help me.

Re: Young Newbie Needs Help/Loan Question (long) - Posted by SueC

Posted by SueC on July 05, 2001 at 14:14:47:

Spend your money on marketing to get motivated sellers to call you. Search the archives here on “motivated sellers” - there are some great posts! Do not focus on getting financing, it’s not necessary. For example, I’ve been running an ad ten days that has pulled in, among other things, two duplexes that the sellers may be willing to L/O to me (I have to pull comps and I’m debating about these neighborhoods and may flip etc.) without ANY of my own money in the deal. I got these thru an ad I’m running in the local daily paper that cost me $50 for the week.

I also have a neighbor’s 15 year old putting flyers everywhere for me. And I have used bandit signs. Altogether, I’ve spent probably $1,000 on marketing in the past 1-1/2 months. But I just made $1500 on a quick flip (that took me under 2 hours) and have other deals in the works.

Spend a portion of your $$ on marketing after you learn more techniques here. Start learning everything you can, by reading everything on this site and buying some courses as you get an idea where you’d like to focus. Then when the calls come in, you’ll know what to do.

Good luck!

Me Too!! - Posted by andy

Posted by andy on July 05, 2001 at 10:33:40:

Hey James,

I just turned 20 and am also embarking on my RE investing career. Like a year ago I started reading everything RE related I could get my hands on. After reading every article on this site, reading some books, and buying courses I can afford right now, I feel very comfortable with my ability to put deals together. Let me share with you what I’ve been through so far in my Young RE Career.

First of all, I wished I had 20k to work with, oh god do I! That’s been my only setback is getting that little bit of capital to start with. Now, one thing I do have going for me is that I have a steady full time job and exelent credit. In my opinion, the type of financing you apply for totally depends on the type of deal. For example, if you were going to purchase a rental property that you intend to keep long term and earn some monthly cash flow, you would probally apply for a conventional bank loan with a low rate. In our case, being the “youngins” that we are, it is hard to get this type of financing. I’ve learned that banks base their criteria on income and credit. The problem I had with these loans was not that my credit is bad, but my credit was new and my income did not match up well with the loan payments. I mean, sure the rents from my tenant would cover my mortgage payment, but the banks want to see steady income, if not they will see the loan as too risky. An alternative to this was to try to get owner financing, where I wouldn’t borrow from the bank but rather the owner would hold the mortgage. I wanted to go this route but couldn’t do it due to the down payments the owners were asking for. However, I see you do have some money to put down so this may work for you. In this case it would be in your best interest to find a motivated seller(i’m sure you’ve read this term many times on this site). Sellers who would be willing to hold the financing.

As far as looking for properties to rehab and sell, I’ve learned that this is my best chance of obtaining financing for a property. These types of loans (hard money/private loans), which lend according to the value of the property after it’s repaired, are a great source of getting financing for properties that banks would not even consider. I found that these hard money lenders WANT to lend to investors. Sometimes these lenders won’t even verify income or credit, as long as they have enough equity in the loan, the money is yours to work with. It’s pretty ironic to me that I can easily get a loan for a fixer-upper but can’t get a loan for a beautiful house!

Lastly, I know you’ve heard the term “flipping.” There are great articles on this site about that aspect where you don’t need any money to do the deal. I also agree with Anne about concentrating on marketing and education first. I just don’t have the time to drive around to look for the “perfect investment property” and the financing to get them.

During the last year my main focus changed like 4 times. It’s just with all the information I was absorbing, I wanted to do everything. First I wanted to buy a property to keep long-term to produce some monthy cash flow, next I wanted to flip, then, I wanted to fix and retail, finally, I wanted to lease/option houses. Then it hit me like a bolt of lightning: I can focus on all of these at the same time! It all depends on getting the SELLERS TO CALL ME.

It all depends on the type of deal it is and applying the right technique to solve a seller’s problem and putting the deal together. So my main focus right now is marketing. When sellers call me, I’m going to get as much information as I can from them to determine if the deal will work and which technique will be the best to apply.

So my recommendation to you is, don’t spend the 20k on a huge down payment. It’s not going to work if you only going to get 200-500 a month cash flow a month from rents. The return on your money would just be too low and not a good way to get started. I suggest getting as much education as you can before cutting any deals. You have a lot of start up money to work with. Spend it wisely.

And James, we may not be able to drink yet, but were certainly going to have enough money to buy our own liquor store one day! LOL.

Good luck,