Buying & Selling Houses

Can’t Find Any Good Duplexes? Bet You Haven’t Looked Here…

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Young woman playing I spy with the camera looking through a rolled cylinder of paper with one eye and a happy smile

It seems like the number one question on the BiggerPockets Forums recently has been:

“How do I get started in real estate investing with no money down?”

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Not exactly surprising. I don’t think there was another real estate deal I was more excited about than the first.

It was like drinking from a firehose though. I really didn't know much about real estate at the time, but I knew the best way was to start was with a two- to four-unit property. That way, if I ever lost my job, I wouldn’t lose my house.

The first deal was expensive for me at the time. I started right after college. It was $245,000 for the purchase for two homes on one lot. I had to put every dollar I had ever saved into the down payment, closing costs, and light rehab work around the house.

Fast forward eight years, and as a licensed agent and full-time real estate investor, I love working with that person I just described—someone who is brand new and wants to get started the right way. That is a huge benefit of working with an agent who has investment experience.

Related: Should You Become a Real Estate Agent?

And the best part? It’s “free” for you. That’s right, for the majority of real estate transactions the seller pays both the buyer’s and seller’s agent commission.

Two vintage Georgian doors in yellow and blue

Finding Deals in Unexpected Places

I was working with one of my friends from high school, and he expressed interest in purchasing a house hack for his first property. We had looked at a few deals with no luck.

Then, he said that his grandma had a house she wanted to sell so that she could move into a condo. Little did I know it was a duplex…

Related: How Single, Work-at-Home Mom Maria Bought Her First Duplex

When I learned this, I said, “Why don’t you buy your grandmother’s duplex?!”

He said it needed some work, and he wanted a larger yard. But then I showed him the different loan programs you can use as an owner-occupied buyer.

How to Finance a House Hack

It is well known and recommended on BiggerPockets that the best way to get started is a multifamily house hack with a 3.5 percent down FHA mortgage. And the holy grail is using the 203k loan, which is the same 3.5 percent down FHA mortgage, except you're allowed to rehab the property, as well, with just one closing.

I love the program, but it is very easy to get in over your head. For instance, if you run into surprises and blow through your contingency funds, guess who has to foot that bill?

And it gets very scary if you don’t have the means to do so. I only recommend it when we have a good FHA consultant, great contractors that we have vetted and worked with before, and the buyer is comfortable with the risk or has construction experience.

But I digress.

Here is how my friend, the duplex buyer, got 100 percent financing on his first deal (well close enough to 100 percent).

As we all know, getting that chunk of money saved for your first deal is tough. It may take years of saving and some sacrifice. But it’s totally worth it.

Real estate agent handing the house key

You can ask for a closing cost credit in the contract, and it typically goes like this: “Seller to credit buyer $6,000 towards pre-paids and closing costs.”

Since his grandma is a family member, we went one step further. We asked her to "gift the equity" to her grandson. That's right, we had the closing costs and down payment covered for his first deal. The deposit was $100 dollars too. 😉

All in all, he had to bring some money to close—but it wasn’t a lot.

The Deal by the Numbers

  • Purchase Price: $135,000
  • Rehab Amount: $75,916.53
  • Construction Contingency (10%): $7,591.65
  • Appraisal: $222,000
  • Equity Created: $11,083.47

How cool is that? If you buy right and rehab on time and on budget, you can create instant equity on your first deal.

And don’t forget to be creative! That is the main takeaway here. You must ask yourself: “How can I afford this?”

Then, you let the creative juices flow. You may not have a relative that has a duplex, but another family member can gift you equity toward the purchase of real estate, too.

Have you considered buying property from a family member? Would you if the opportunity presented itself? Why or why not?

Comment below. 

Scott Hollister is a real estate investor, lender, and licensed agent in central Connecticut. He began real estate investing in 2012 with a house hack after his parents lost their home in the reces...
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    David Hamlein
    Replied 7 months ago
    So a family member can gift equity from a property of their own, for a different property that you're looking into?
    Scott Hollister Rental Property Investor from Connecticut
    Replied 7 months ago
    Not just from their property, it can be cash they have on hand to help assist you with the purchase of real estate. Please see copy from Fannie Mae below, just keep in mind that regulations can change, so best to ask your local lender. "Gift of Equity A “gift of equity” refers to a gift provided by the seller of a property to the buyer. The gift represents a portion of the seller’s equity in the property, and is transferred to the buyer as a credit in the transaction. A gift of equity is permitted for principal residence and second home purchase transactions. The acceptable donor and minimum borrower contribution requirements for gifts also apply to gifts of equity. See B3-4.3-04, Personal Gifts." "Documentation Requirements The following documents must be retained in the loan file: a signed gift letter (see B3-4.3-04, Personal Gifts), and the settlement statement listing the gift of equity." Link: https://selling-guide.fanniemae.com/Selling-Guide/Origination-thru-Closing/Subpart-B3-Underwriting-Borrowers/Chapter-B3-4-Asset-Assessment/Section-B3-4-3-Verification-of-Non-Depository-Assets/1736869081/B3-4-3-05-Gifts-of-Equity-11-13-2012.htm
    Account Closed Banker from Pakistan
    Replied 7 months ago
    Gift of Equity A “gift of equity” refers to a gift provided by the seller of a property to the buyer. The gift represents a portion of the seller’s equity in the property,
    Aaron Raymond from Phoenix, AZ
    Replied 7 months ago
    So once your friend rehabbed both sides of the duplex using the 203k loan process - How long does s/he need to live in that house before they can rent out both sides and start again? Whats the tpical loan process after you have used the FHA or 203k process the first time? Thanks in advance!
    Rob Massopust Real Estate Broker from Garden Grove, California
    Replied 7 months ago
    You have to make every intent to be in the unit as owner occupied. But you can switch units. Also if you stay there at least 6 months to a year and if you have to move sooner [like a job change etc] they are not really going to do anything [I guess they can call the note due, but never heard of that] as long as you are not flagrantly abusing this you should be ok. Also you can refi after 6 months - assuming you have enough equity and credit etc. If you can get out of the higher interest and get rid of PMI thats a great feeling. If you get cash out its a home run!