Buffalo, NY · Member since 2013 · 1 post · 0 votes
Hello .. My name is Isaac, and I am new to Real Estate Investing. I currently rent an apartment. I want to buy a property within the next few months but I am not sure which direction to go.
My question is, should I focus on buying a house for personal residence before I start looking into buying investment properties?!
If I do buy a house for my personal residence, should I start a LLC and buy it under the company or should I buy as personal property without a LLC?
Real Estate Investor · Jefferson City, TN · Member since 2011 · 16 posts · 4 votes
12y
I wouldn't worry at all about starting an LLC right now. All it will do is create extra expenses and difficulty for you in getting started. You can always start an LLC later and easily transfer them into it then.
I think it's just a matter of personal preference on buying a personal residence or investment property first. I would just be looking for single family homes that for sale at a large discount and if you like it move in and if it's not quite what you're looking for use it as an investment. Depending on your current rent, buying a personal residence could cut down on some expenses.
Investor · Kansas City, MO · Member since 2013 · 465 posts · 170 votes
12y
Duplex?? Live for free in one half rent out the other? Once your ready to move to something bigger, rent both sides out. You've gained equity and now have a profitible rental that you basically live (x)years in for free.
Investor · Lafayette/Baton Rouge, LA · Member since 2013 · 1k+ posts · 915 votes
12y
The distressed (discounted) multifamily property can be quite a challenge to find. Another option is to look for a property with a mother-in-law cottage or home on the property. You could live in the mother-in-law cottage and rent the more valuable home to tenants. Its a property that you can finance as an owner occupied property with the best terms, yet still live in one part and rent the other. I wish I could take credit for that great idea, but it came from one of the podcasts I listened to within the last two or three weeks on Bigger Pockets!
Real Estate Investor · Naperville, IL · Member since 2013 · 27 posts · 4 votes
12y
@Isaac Dixson I agree with Andy. A great way to start is with a duplex. You live in one while renting out the other. No need to start a LLC in your situation.
Real Estate Agent · Realtor - Dallas, TX · Member since 2013 · 342 posts · 55 votes
12y
A duplex is hard to find in many areas…as the case in my area (DFW)…unless you want to live in a bad neighborhood, you won't find them…are there benefits to him buying a home to live in, with the intention of moving out in a couple of years and using as a rental?…if he buys a home to live in, will it eat up his debt-to-equity ratio he could be using to buy rental properties?…how much will this slow his progress down?…I'm (obviously) curious for myself as well ;-)
Real Estate Investor · Jefferson City, TN · Member since 2011 · 16 posts · 4 votes
12y
I agree, duplexes and multi unit buildings are harder to find and a good enough discount. I like single family houses because you can sell them to other investors or homeowners. Most multi unit builds have to be sold to other investors. You might be able to find 2 decent houses priced well enough below market to buy one multi family.
Rental Property Investor · Milwaukee, WI · Member since 2013 · 17 posts · 10 votes
12y
Isaac Dixson Congratulation for having the idea in your head. I purchased my first property with an FHA loan 3.5% down for a four unit. It's been a blast. I got my LLC after I closed on the property.
1. Get a approve for the type of loan you desire unless your using your own money.
2. Network! Network! Network!
3. Find a handy Dandy man to do work for cheap and take them with you on the showing.
4. Understand that real estate is not a quick get money scam.
You'll do fine. Oh yeah one other last very important part get a mentor who understands real estate!
Good luck!
Investor · Stamford, CT · Member since 2011 · 50 posts · 20 votes
12y
@Isaac Dixson Depends on your situation but I bought my first SF investment before owning a primary residence. The Multifamily idea is a good route. You can even buy a 2 family and rent out both units, this makes sense if you are making more per unit than what your current monthly rent is. Try not to complicate things...do the numbers and if it looks good then go for it!
@Ariam K. Congrats on the four unit investment using the FHA loan. Question: How were you able to transfer the property to an LLC after you closed? As I understand the only way would be to refinance and then transfer it to an LLC or pay off the lien?
Rental Property Investor · Milwaukee, WI · Member since 2013 · 17 posts · 10 votes
12y
Aaron Ram You know at first I didn't think I needed to do that since it was my first investment. Now that I've been dealing with tenants and working on my second investment. I'll defiantly be transferring it over soon. I don't want my personal asset to be messed with.
Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
12y
I'm very opposed to buying a house for yourself before investment properties. If you ever do the actual math on owning your home, the costs are insane. The only way I would say do that is if you buy a multi and live in one unit.
For LLC, I would say no, but here is a huge amount of info on it (look especially through the comments)-
Investor · Rowlett, TX · Member since 2013 · 132 posts · 72 votes
12y
If you are just starting out, which it sounds like you are :), I would also recommend the multifamily live in situation. The reason I say this is because when many people start out investing, they may not have a lot of capital to invest with which may slow you down in your homebuying process (unless you get great at creative financing).
If your area in NY has some good multifamilies that you can buy and move into (make sure the numbers are right too!), then you can free up that living expense while allowing you to save up money for buying other real estate. This also helps your DTI which can also help for bank financing in the future. Your multifamily will be good for cash flow in the future rather than equity as SFR are mainly purchased for, and at this point in your beginning investing career, all the help in cash flow and less debt makes a BIG difference.
Good luck to you and don't ever feel like you are asking too many questions!
Investor · PA · Member since 2013 · 1k+ posts · 602 votes
12y
Buy a house to live in if it's cheaper than renting a house the same size by a good margin. I pay 600/mo to live in the house I'm at but I know I could rent it for 900/mo if I had to move. As far as buying investment properties, I usually buy the cheapest properties I can find, fix them myself and then rent them for a discount compared to other houses nearby (700-900/mo). You can find properties that don't need much work in the 10-20k range many times but the turn over rate can be higher in these areas.
Isaac Dixson Congratulation for having the idea in your head. I purchased my first property with an FHA loan 3.5% down for a four unit. It's been a blast. I got my LLC after I closed on the property.
1. Get a approve for the type of loan you desire unless your using your own money.
2. Network! Network! Network!
3. Find a handy Dandy man to do work for cheap and take them with you on the showing.
4. Understand that real estate is not a quick get money scam.
You'll do fine. Oh yeah one other last very important part get a mentor who understands real estate!
Good luck!
After doing the math, how did you justify the HUGE loss in cash flow using an FHA instead of a conventional. I see no means to justify a FHA in my upcoming multifamily purchase.
Well I guess the only way is if I want to rush into something and I can find NO other means for 20%, but I think I would campaign for investors before I took the hit on the crazy FHA fees.
Engineer · Savoy, IL · Member since 2013 · 92 posts · 12 votes
12y
For owner occupied 1-4 unit first time purchase you shouldn't have to put 20% down if you'd prefer to hold onto some reserve funds. You will still have to pay PMI, but not near the rate or lock-in as you would with FHA. You should be able to get rid of the PMI as soon as you reach 20% equity (per an appraiser or equity paydown, but make sure to cover the minimum timeline details with your lender.)
My experience: I bought a duplex and moved into 1 side and rent out the other side. I used a conventional mortgage with 5% down and because it is owner occupied I was able to get a 3.625% 30y mortgage (closed in June). I pay about $65/month PMI for now.
I purchased my duplex prior to really digging on BP, and definitely over paid. Even with overpaying, the rent from one side covers my principal, Interest & Insurance. It does not cover my taxes or maintenance. Luckily I will be able to still cash flow after moving out and renting both units (according to 50% rule) but probably only around $75/door.
I'm very opposed to buying a house for yourself before investment properties. If you ever do the actual math on owning your home, the costs are insane. The only way I would say do that is if you buy a multi and live in one unit.
Agreed. My wife is already on board with this line of thinking. We will simply not buy the home we want to buy until we have 8 assets to pay for that gigantic liability. It isn't the most popular choice with family/friends, but I believe it is the correct choice for the future.
Engineer · Savoy, IL · Member since 2013 · 92 posts · 12 votes
12y
I could definitely be wrong, but I'll be honest, the only reason the 5% conventional came up, was because I had issues coming up with the 6 months reserves at that time. I was pushing to see what was available beyond the FHA, because I made another noob mistake of depositing a fairly large sum of cash into my bank account that I had been stashing away. FHA required something like 3 months of bank statements meaning i'd have to wait 3 months before my cash deposit seasoned. Conventional required only 1 before closing I believe. Anyways, it came up when I was sitting in front of a blank purchasing contract and at my wits end on how i was going to finance the deal. Then somebody mentioned 5% conventional on the duplex and I was both happy and mad at the solution!
Anyways, it's possible a 4-plex would not fall into the same category as a duplex, and I vaguely remember hearing something about 10% minimum. I am by no means anywhere near being an expert in this subject, but I would definitely advise that you shop around. They should be fighting for your business.
Real Estate Investor · Columbus, OH · Member since 2013 · 7 posts · 0 votes
12y
I bought my first SFH before I owned my own home. I bought rental in home town while i was working out of state. Mother is a landlord so she agreed to be my PM until I moved home a year later. "Rich Dad" says buy assets, and your own home is a liability.
In a perfect situation i would have purchased a Multi and lived in a unit, but i cant complain on how it's turned out. Good luck !
Real Estate Investor · salem, OR · Member since 2013 · 105 posts · 32 votes
12y
Issac,
Just starting out I would not form an LLC. Its easier to get financing when the property is in your own name instead of an LLC. Banks like your name on title. When you get multiple properties that are not owner occupied then definitely form LLC to protect your assets.