Situation:

27 years old female
Statistical Analyst-MBA
No spouse or children
great credit (>700)
owns a condo

I am a young professional who entered corporate America at 18 and am already tired of it at 27. Of fascination to me has been the real estate field for the last 2 years. I bought my first owner occupied property last year, and want to buy my first investment next year.

Here is my tentative strategy and question:

I am scheduled to begin RE school next month and sell part time. Both to benefit my investment career and provide me numerous tax breaks that simply being a corporate employee cannot provide. My goal is to leverage the extra income from sales and experience to eventually become a full time investor by the age of 37. My current job affords me a 4-day workweek, no nights or weekends, is relatively stress free and overpays!

As a new agent, my marketing strategy is to develop myself as a condominium, town home, over 55-community specialist in the area I live in. I personally love the condominium lifestyle, and saw a lack of concentrated agent info on the area when looking last year. There is currently no agent in my immediate area marketing that niche.

I have read several books and am part of a RE investment club in my area. From personal experience, self-knowledge and time, I do not want to deal with landlording. I am very handy and enjoy rehabbing. I plan to buy below market value properties, do all light/cosmetic rehab myself and flip, or do preconstruction condo/SFH deals.

Financially, to leverage the first property, I am thinking of several alternatives:

-Get a HELOC against my condo, which I expect to net about 20K next year - use to invest in property with 80/20 loan, interest only or loan against ARV

-I also expect an annual bonus early next year. Instead of paying down about $10K in credit card debt, use as (which will be about $10K after tax) as down payment on a property. However, I was thinking I want to use the HELOC or other financing, and use the additional 10K to make repairs on the property before flip. I also have about $25K in available credit, but find that more risky.

Or, later this year, refi my condo to an interest only as I do not expect to be here very long (3-5 years). In fact, if I do landlord, this property may be my first attempt down the line. I expect my payments to drop about $400-500 month. Of course, if I do this, I may not be able to cash out, or not as much. I may also do this to cover the routine costs of my career as an agent.

As a new investor, I am familiar with but am a little averse to going sub2 or lease option on my first deal.

I will be finished in RE school in October. I hope that by next year, I will be in the mix enough to have a few below market value properties come across my path. I have already identified a brokerage that will take me on and is friendly to new agents and those who invest.

From your experience, I have several questions:

-Do you see any potential pitfalls in my plan?
-What would you advise my best financial option is? My credit is about 760. I want to get in for as little down as possible, paying as little a month as possible.
-Should I be averse to going sub 2 or doing a lease option as a first timer for rehab/flip?
-How would you advise I go about becoming a specialist in condo/over 55, townhome? I am looking for a concentrated list of them in my area, so I can visit each and learn more and talk to residents - then compile a comprehensive strategy for marketing my knowledge. I then want to get a website based on it. Where could I find such a list? I was thinking the county may have something for zoning purposes, or large property management associations.

ANY OTHER ADVICE AROUND MY PLAN WOULD BE APPRECIATED!

Hi Afrei!

I can see you are great at laying out your plan of attack. If I could I would lead in the educated direction of picking your RE Investment Niche(s) and going after those while learning the rest.

www.johntreed.com (Vol 1-2 20% below mkt books)

Title Problems
Probate
Pre-foreclosures
Forclosure auctions
Conventional OREOs
FHA and VA repos
Builder auctions
Tenant-in-common interests
Rights of redemption
Life and remainder estates
Existing options
IRS sales
Bankruptcy
Execution sales
Houses that smell
Condemned property
Delinquent tax auction
Judgement investing
Regulatory loopholes
Used mobilehomes
Owner unknown
Discount lien release
Condo reconversion
Assembly
Out-of-country land owners
Development-ready lots
Enviromental-problem property
Corporate property
Distressed-owner bargains
Delinquent subdivision mortgages
Property-wanted ads
Homeowner-association-dues foreclosure


Depending upon your area: (1) Most bargains aren't found in the MLS, but rather in the judicial system and/or word of mouth. And,(2)A lot of professional bargain hunters use "fast-cash" to persuade the owners. Although their are some creative financing techniques which people use, but my guru says their is no such thing just like "creative accounting" which took place at Enron. I recommend William Bronchick's books for the creative financing stuff.

*Their are so many B.S. artists out there pushing no money down and lease option techniques that get people to chase the american "pie in the sky."


I wish you the best of luck!

Afrei,

I'm a big proponent of putting at least 20% down payment and shooting for 15 year loans. If you stop to take a look at how much more you're paying for twice as long you'll be shocked.

It might take you some time to accumulate the funds to do this, but it's my experience that the landlords/investors that are successful with investment property in the long term (10+ years) are those that pay at least 20% down and go for the 15 year notes. They simply wait until they have saved enough cash for these requirements and still make the numbers work.

Run, don't walk, away from interest only loans.

Be very careful pulling HELOCs on your existing property. A mortgage friend of mine treated HELOC money with this rental properties as free, found money that he used to overextend himself to buy more property and ended up with 10 three family homes in record time only to see his investment pyramid house of cards tumble one by one when something went wrong (electrical fire rendered stopped cash flow on one of his buildings...insurance company got off the hook through a clever loophole...he was in a corner which equaled foreclosure city.).

Slow and steady is the best course to take...good deals will always come around. It's easy to get caught up in the euphoria when you see everyone else's homes appreciating.

Xenogenetic,

I too shied away from the interest only loans last year when I was shopping, however, many have pitched to me "your mortgage is 90%+ interest the first 5-7 years anyway, so why pay the high note?". As I don't see myself here longer than 5 years, so why not?

Now, if I keep it as an investment and rent it out, I thought of flipping it into a series of short term ARMs every 3-5 years. I have a 7 year arm now..I'm getting offers for 3-5 year arms a full percentage point or more lower than what I"m paying now. That could be an option.

Regarding 20% down - I do agree the more down the better..I will be most likely investing in an urban area (philadelphia or camden,nj) where I can get properties for well under 100K. However, I want to hold onto as much cash as possible for rehab, closing and transaction costs.

Basically, I want to use no 'bad' credit on this deal.

With ARM's you're essentially making a bet on the market enjoying steady interest rates and appreciation rates. Miscalculate and you could be caught short. You may not see yourself in the home for more than 5 years but if the unlikely occurs and home prices plumment and you can't find a buyer at the sales price that you need you won't have a choice but to stay in the home for longer than 5 years.

Trump once said: "Find out what the worst case scenario is and if you can stomach it, do the deal.". I think you have to assess your situation and consider every worst case scenario.