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Hi all,
I’ve made some huge life changes over the past 4 months and now I’m in a new city with an updated plan. I wanted to post it here to get feedback, comments, critiques or anything else the great minds here might want to provide.
Since I know someone (probably Russ or ATW!) will ask how this current stage of my plan fits into my overall PLAN, let me say a few words. I’m 32 years old right now and my goal is by age 37 to be running my own real estate firm that does two things: 1) large, multifamily development deals. I’ve come to realize just how passionate I am about urban development and would love to do some experimental type deals in the future that express my passion in green building, design and modern architecture. 2) owns apartment buildings, other real estate and/or has developed another line of business that provide the monthly cashflow to live on while I do the more risky development deals. I was planning to just do development deals, but this economic downturned really showed me the value of having cash flow, even if you are making millions from big development deals because if your ability to do deals dries up (as it has done for some great developers these days), you are sunk if you don’t have cashflow to keep your business alive. I don’t expect to have the cashflow necessary to quit working anytime soon, but my preliminary goal is $29,166/month by the time I’m 42 (10 years from now). That’s a lot of cashflow, but that is how much I want and I know if I put 110% into my plan for the next 10 years, I plan to get there. That cashflow doesn’t take into account money being funneled into my business through development deals, unless it is specifically used to acquire real estate for the passive income purpose.
So I’m now planning backwards off that 10 year goal. I think there are 3 main components to achieving this goal. They are as follows:
1) Relevant real estate experience; deal locating ability; deal making ability; successful deal completion ability
2) Team of development mentors, lenders, equity contacts and other key team members
3) Ability to raise money from other people and personal financial situation that allows me to be my own boss by my 5 year goal.
For those of you who don’t know my story, I spent the past 5 years working as a development project manager in one of the biggest and most competitive real estate markets in the country. I was the lead project manager on 2 “Big Deals†that the company I worked for developed from Day 1. I’m now in a smaller city (but certainly not “small†city) working at a new company as an asset manager where I manage and oversee a portfolio of 8 multifamily assets around the US. I’m responsible for financial oversight, budgeting, investor and partner relations, etc. So between these 2 experiences I feel I’m moving in the right direction as far as #1 is concerned. I will need to improve my own ability to put together and locate deals, as all of the deals I have/am worked on have been put together by someone else.
As for #2, I’ve spent my early time in my new city connecting with people (http://www.thefastlanetomillions.com/general-business-discussion/24403-how-do-i-find-mentor.html) and have done my best to keep in touch with my connections in my former city. So while I have a lot more work to do here, I think I’m again moving in the right direction.
#3 is where I need advice from the great minds here. I’m going to give a little more background on the situation and then ask a few specific questions.
As I mentioned above, I moved out of a very high priced city and I want to be able to take advantage of the opportunity that provides. My wife and I are currently living with her mom while we get settled and figure out our next move. We’ve accumulated a significant amount of debt (well, mostly I did between ages 20-25) and my wife has been in grad school and then doing internships for the past few years, so we definitely fall in the “low income, high debt†category.
I have accumulated a good amount of real estate knowledge over the past 5 ½ years and with the market where it is today, I feel like it would be a smart move when we move out to acquire our first investment. I’ve thought about using a HUD203k loan to buy a home we can get, rehab while living in, then resell. I’ve also thought about buying a 4-plex and living in one of the units, but without strong reserves, I’m not confident about that. Lack of reserves is one of the biggest killers in real estate, and I’ve seen several examples over the past few years of otherwise brilliant people losing millions in net worth over not having proper reserves.
Currently, my wife is studying for 2 national board exams and needs to receive some certifications before she can practice therapy here. She will be done in April and then looking for a position. (FYI, we carefully evaluated if she should work part time at Starbucks or something while studying, but she really needs every available moment to pass these exams.) Thankfully, my paycheck currently covers all of our living expenses, debt obligations and everything else we do, but doesn’t leave us much cushion.
I’ve met with a good mortgage broker and found I can only qualify for a $100k home…best case scenario being $140-150k. When my wife is working, it goes up to $250k-300k.
And even though we can hypothetically qualify for that money, we would drastically have to cut our budget in our ways to afford the mortgage payments. So we will be at ramen noodles – at best – with this play. Hope would be to buy a $125k home, put $10k into it, then resell for $175k. Then simply repeat the process.
So here are my questions (thank you for reading this far if you are still awake!!):
1) Do you think buying a home to live in and rehab is the best next step for me right now?
POSITIVES:
a) We could move in, use some HUD funds to do a light rehab, then resell. Since we are living in the home, that would help mitigate some of the risk, because then worst case we just stay in the home longer than we had hoped.
b) Also, once my wife begins working in April/May, we’ll have extra funds for reserves, emergencies, etc.
c) If we act now, we might be able to get into contract before 4/30/10, so we could qualify for the $8k tax credit.
RISKS:
a) Does the first time homebuyer market dry up after the tax credit expires and the government stops buying MBS in March?
b) I have never rehabbed a home before so there is risk of me not making the right decisions.
c) Also, I am not good at “fixing†things, so I’d definitely need to hire someone to do the work.
d) I’m embarrassed to find a partner if needed. It seems to me like I’d lose credibility if I needed to find a partner on a $125k deal because I don’t have enough funds to make it happen.
2) Or would it be smarter to try and partner with someone and aim a little higher right off the bat? What about finding an under valued 4-plex? We could live in one unit, manage the building (possibly take a management fee), supervise a light cosmetic rehab. Then in 2011 or 2012 when we are able to raise rents, go ahead and do so. Then sell the building and roll the profit into a bigger one.
I feel like I’m in a good position experience wise and flexibility wise to make a smart move in the right direction toward my goals with this next decision. Still in a bad financial place, but my wife and I recognize that and are willing to live “uncomfortably†for awhile to rectify that.
Is there anything I’m missing with my line of thinking here? Anything you would suggest or something that I’m missing here?
Thanks a ton.
Sid23
I’ve made some huge life changes over the past 4 months and now I’m in a new city with an updated plan. I wanted to post it here to get feedback, comments, critiques or anything else the great minds here might want to provide.
Since I know someone (probably Russ or ATW!) will ask how this current stage of my plan fits into my overall PLAN, let me say a few words. I’m 32 years old right now and my goal is by age 37 to be running my own real estate firm that does two things: 1) large, multifamily development deals. I’ve come to realize just how passionate I am about urban development and would love to do some experimental type deals in the future that express my passion in green building, design and modern architecture. 2) owns apartment buildings, other real estate and/or has developed another line of business that provide the monthly cashflow to live on while I do the more risky development deals. I was planning to just do development deals, but this economic downturned really showed me the value of having cash flow, even if you are making millions from big development deals because if your ability to do deals dries up (as it has done for some great developers these days), you are sunk if you don’t have cashflow to keep your business alive. I don’t expect to have the cashflow necessary to quit working anytime soon, but my preliminary goal is $29,166/month by the time I’m 42 (10 years from now). That’s a lot of cashflow, but that is how much I want and I know if I put 110% into my plan for the next 10 years, I plan to get there. That cashflow doesn’t take into account money being funneled into my business through development deals, unless it is specifically used to acquire real estate for the passive income purpose.
So I’m now planning backwards off that 10 year goal. I think there are 3 main components to achieving this goal. They are as follows:
1) Relevant real estate experience; deal locating ability; deal making ability; successful deal completion ability
2) Team of development mentors, lenders, equity contacts and other key team members
3) Ability to raise money from other people and personal financial situation that allows me to be my own boss by my 5 year goal.
For those of you who don’t know my story, I spent the past 5 years working as a development project manager in one of the biggest and most competitive real estate markets in the country. I was the lead project manager on 2 “Big Deals†that the company I worked for developed from Day 1. I’m now in a smaller city (but certainly not “small†city) working at a new company as an asset manager where I manage and oversee a portfolio of 8 multifamily assets around the US. I’m responsible for financial oversight, budgeting, investor and partner relations, etc. So between these 2 experiences I feel I’m moving in the right direction as far as #1 is concerned. I will need to improve my own ability to put together and locate deals, as all of the deals I have/am worked on have been put together by someone else.
As for #2, I’ve spent my early time in my new city connecting with people (http://www.thefastlanetomillions.com/general-business-discussion/24403-how-do-i-find-mentor.html) and have done my best to keep in touch with my connections in my former city. So while I have a lot more work to do here, I think I’m again moving in the right direction.
#3 is where I need advice from the great minds here. I’m going to give a little more background on the situation and then ask a few specific questions.
As I mentioned above, I moved out of a very high priced city and I want to be able to take advantage of the opportunity that provides. My wife and I are currently living with her mom while we get settled and figure out our next move. We’ve accumulated a significant amount of debt (well, mostly I did between ages 20-25) and my wife has been in grad school and then doing internships for the past few years, so we definitely fall in the “low income, high debt†category.
I have accumulated a good amount of real estate knowledge over the past 5 ½ years and with the market where it is today, I feel like it would be a smart move when we move out to acquire our first investment. I’ve thought about using a HUD203k loan to buy a home we can get, rehab while living in, then resell. I’ve also thought about buying a 4-plex and living in one of the units, but without strong reserves, I’m not confident about that. Lack of reserves is one of the biggest killers in real estate, and I’ve seen several examples over the past few years of otherwise brilliant people losing millions in net worth over not having proper reserves.
Currently, my wife is studying for 2 national board exams and needs to receive some certifications before she can practice therapy here. She will be done in April and then looking for a position. (FYI, we carefully evaluated if she should work part time at Starbucks or something while studying, but she really needs every available moment to pass these exams.) Thankfully, my paycheck currently covers all of our living expenses, debt obligations and everything else we do, but doesn’t leave us much cushion.
I’ve met with a good mortgage broker and found I can only qualify for a $100k home…best case scenario being $140-150k. When my wife is working, it goes up to $250k-300k.
And even though we can hypothetically qualify for that money, we would drastically have to cut our budget in our ways to afford the mortgage payments. So we will be at ramen noodles – at best – with this play. Hope would be to buy a $125k home, put $10k into it, then resell for $175k. Then simply repeat the process.
So here are my questions (thank you for reading this far if you are still awake!!):
1) Do you think buying a home to live in and rehab is the best next step for me right now?
POSITIVES:
a) We could move in, use some HUD funds to do a light rehab, then resell. Since we are living in the home, that would help mitigate some of the risk, because then worst case we just stay in the home longer than we had hoped.
b) Also, once my wife begins working in April/May, we’ll have extra funds for reserves, emergencies, etc.
c) If we act now, we might be able to get into contract before 4/30/10, so we could qualify for the $8k tax credit.
RISKS:
a) Does the first time homebuyer market dry up after the tax credit expires and the government stops buying MBS in March?
b) I have never rehabbed a home before so there is risk of me not making the right decisions.
c) Also, I am not good at “fixing†things, so I’d definitely need to hire someone to do the work.
d) I’m embarrassed to find a partner if needed. It seems to me like I’d lose credibility if I needed to find a partner on a $125k deal because I don’t have enough funds to make it happen.
2) Or would it be smarter to try and partner with someone and aim a little higher right off the bat? What about finding an under valued 4-plex? We could live in one unit, manage the building (possibly take a management fee), supervise a light cosmetic rehab. Then in 2011 or 2012 when we are able to raise rents, go ahead and do so. Then sell the building and roll the profit into a bigger one.
I feel like I’m in a good position experience wise and flexibility wise to make a smart move in the right direction toward my goals with this next decision. Still in a bad financial place, but my wife and I recognize that and are willing to live “uncomfortably†for awhile to rectify that.
Is there anything I’m missing with my line of thinking here? Anything you would suggest or something that I’m missing here?
Thanks a ton.
Sid23
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