Fastlane brothers and sisters, I am here to show you the light should you so accept to see it. I’d like to offer some advice from
my experiences and to share the wealth of living
rent free.
This is not a revolutionary topic, and I am not a revolutionary human. Living rent free has been done by many. Living rent free
with cash flow has also been done by many (including me). It is
easy. It will likely end up costing you less than $10,000 (I only brought $5,900 to the closing table on my first property). It’s a
no brainer move for those of you who are hungry and ready to forge your own path in life. Ever since I posted about my first 3-flat, members have reached out to me asking what type of financing I utilized, where I began, what books I read...this thread is a basic answer to many of those questions.
This thread is not intended to make you join the apartment investor Fastlane (although cash flow has severely addictive qualities, just ask @
SteveO, @
AroundTheWorld, @
zen*******, @
RealOG, @
CashFlowDepot, etc.). No, this thread is here to help you make one simple move that can stabilize your life as your pursue whatever Fastlane
you choose. Stop paying the man each month (me) and start focusing on your goals. I hope that this thread will help even JUST
ONE person on here to live without the constant cloud of having a rent / mortgage payment every month.
No longer will the excuse of “
I have too many bills to pay to quit my job and enter the Fastlane full time” remain valid. We are building your
shelter. We are building your
money tree. We are building the
castle from which you will
wage your war.
This thread is targeted for those of you who currently have:
- A stream of income from your lame J.O.B., from your own business (need 2 years of 1099 history for this to work if self-employed), from your full blown Fastlane venture or from your sugar daddy/ momma (whatever) and
- Currently do not have an FHA mortgage
We are going to learn
how to purchase a duplex, 3-flat or 4-flat with as little as 3.5% down that will cash-flow and pay for itself.
Are you tired of paying your landlord your hard earned wage each month and having nothing to show for it? Do you wish you had a money tree in your backyard? Good. Let’s rock and roll.
Let’s break down what you will need to do into a simple list:
1. Contact / engage a mortgage broker
- Hop on Yelp! and search for the best mortgage broker in your city. Pick one who has high remarks in their reviews. Don’t get bogged down searching for the perfect mortgage broker. There are thousands in every city. Call a few and pick the one that pays attention to you (answers quickly, calls you back quickly, etc.)
- Obtain a mortgage pre-approval (broker will walk you through the steps) for an FHA mortgage (broker will walk you through all the documents they need you to sign)
i. An FHA mortgage is a tool that first time home buyers who will be owner-occupants (move into the property) can utilize
ii. Broker will run your credit (FHA minimum score threshold is around 550 I think, so hopefully you are a responsible, bill-paying-son-of-a-b*tch)!
3. Once you are pre-approved, the mortgage broker will get you the loan you need once your real estate broker (step 2) finds you the property you want. They will charge you a fee at closing (likely 1%, or 1 “point”) which can be rolled into your loan
2. Engage a real estate broker
- Same thing, head to Yelp! and pick based on reviews. Call a few and tell them what you are searching for:
- Tell your broker you want to look for owner-occupant Freddie Mac (HomeSteps), Fannie Mae (HomePath) properties that are between 2 to 4 units (our ideal number is 3 or 4 units)
i. The reason we like Fannie and Freddie foreclosures is because owner-occupant buyers have a 14 day window to bid on these properties before investors. This restriction is intended to keep real estate investors from driving up the price of houses on the home buying citizens of America. Which is good for you, Mr. first time home-buyer!
3. Look at some properties (criteria)
- Check out properties you think fit the size criteria, and that are in a good area of your city. Try to stick near big transportation hubs (trains) and try to pick an up-and-coming neighborhood (read: follow the hipsters)
i. Hipster neighborhoods are the next places that will “turn” economically in a given city, and are great spots to realize cash flow
2. Hop on PadMapper.com (good for checking rents in an area) to see what kind of rents you can expect from the property you are looking at
i. Example (all made up): 3 unit, Seattle with all units having 2 beds 1 bath.
- Rents in the area are $1,000 per unit on average (same size, quality, finishes, etc.)
3. Take the gross amount of rents and apply a safe buffer of 50% for expenses:
i. 3 units x $1,000 = $3,000 per month gross rents x 50% = $1,500 expenses
- This means you keep $1,500 in your pocket (your “NOI” or Net Operating Income)
4. Figure out a buffer for your mortgage (and any possible cash flow)
i. If you paid $200,000 for this property @ 4.25% for 30-years and 3.5% down, your monthly payment would be ~$1,500. Voila, no mortgage
- This doesn’t take into account that most months you will not hit 50% expenses. Some will be 0% (very cash positive), some will be 150% (cash drain) so be sure to keep reserves set aside from the good months for when the bad months come around
ii. You make your money when you BUY not when you sell
4. Pull the trigger!
- I would recommend looking at 15 to 20 properties with your agent and getting a good feel for the market. You will start to recognize trends.
This whole process will only take 2 months or so and sets you up for months of lower-stress productivity. Stop subscribing to
get rich quick mindset.
Good things require process and take time.
If this interests you, just start calling people! Just because you talk to brokers doesn’t mean you HAVE to buy something. Good brokers will hold your hand through the whole process. If a property was recently rehabbed or isn't more than 10 years old...then use 40% for expenses when you do your quick-check math. If a property has under market rents...don't pay for what the property "COULD" be operating at. Pay what it is currently worth
knowing that when you increase the rents you will cover your mortgage and realize equity appreciation. Just use
common sense.
If you think you can spend your resources in a better place, or make the “jobless” leap without buying your “castle”, then please do. This thread is for people stuck in a job or who are too timid to take a leap of faith without first building a small form of support.
I did not even touch on the fact that you can utilize an FHA 203-k loan, and get rehab construction rolled up into your loan amount, or the larger fundamentals of apartment investing, but that is because I am not trying to teach you how to be a guru here, I am simply providing a path to ease your monthly financial burden
.
If you are going to make this move and want to hit a home run, DO YOUR RESEARCH and take a dive down the rabbit hole. If you don’t want to spend a ton of time learning how to hit a home run, that’s alright because you must remember that singles, doubles and triples (pun intended) still put points on the board in the long-run. Just get moving NOW!
Read some apartment investing books over the course of a few weeks and then plan your path to freedom
carefully. Don’t shoot in the dark, but make sure you do in fact
shoot. No deal will ever be perfect. The timing will never be right.
Pull the trigger now.
Note: I am not a financial advisor or a lawyer and this thread is purely an opinion that I hope you can draw from. Purchase property, or invest, at your own risk.
PS. Buy in the winter months if you want to get lower pricing and less market competition.
G
