Buying My First Property

9 Replies

I am 22 yrs old, graduating May 2014. I have been saving up for the past couple of months and looking to purchase a condominium unit sometime after July 2014. I may be purchasing with a close friend. Should I do it on my own? I only intend on living in the unit for about a year, year and a half, before purchasing my next property. Where should I begin?

Purchase yourself and rent out to your friend?

I've done deals with a close friend. Its a bad idea. When things go wrong, and they inevitably will, it can be hard to agree on a course of action. They say "the only ship that won't sail is a partnership." Just save until you can do it on your own.

Hello Edward and congratulations on being close to graduating and for getting the RE bug!

My first word of caution would be to be extremely careful if you decide to buy a place with your friend. This can be a very good way to ruin a friendship. Will you be moving out after a year/year and a half or just purchase another property? What will you do if your friend decides he wants to move in 1, 3 or 5 years? Will you be able to buy him out or will you have to sell your property? If you have to sell, will you be able to and make your money back? (That's a rhetorical question because you don't know) What if you decide you want to move? What if one of you lose your job and can't pay their share?

I'm not trying to be negative or suggesting that your friendship will not last. There are just a lot of things you need to think about and a lot of "what if's" you and your friend need to discuss before buying something.

What about buying a duplex? Would that be a possibility? Then either you could each live in one side and if one decided to move you could then rent out that side, or you could live together in one side and rent out the other to help cover your mortgage. Just an idea.

I'm not a big fan of condos personally. Most of them have very high HOA dues (if they're a good complex in a good area and they take care of the place)and you never know when you might get hit with an assessment that may not even benefit from whatever the work is that's being done.

Best of luck!

Originally posted by @Jon Holdman :
I've done deals with a close friend. Its a bad idea. When things go wrong, and they inevitably will, it can be hard to agree on a course of action. They say "the only ship that won't sail is a partnership." Just save until you can do it on your own.

Hey Jon, I've been told on several occassions already. I'm leaning more toward just working on my own. Just felt like I needed to partner with someone in order to rush for downpayment and have something a little sooner.

Originally posted by @Eric Black :
Hello Edward and congratulations on being close to graduating and for getting the RE bug!

My first word of caution would be to be extremely careful if you decide to buy a place with your friend. This can be a very good way to ruin a friendship. Will you be moving out after a year/year and a half or just purchase another property? What will you do if your friend decides he wants to move in 1, 3 or 5 years? Will you be able to buy him out or will you have to sell your property? If you have to sell, will you be able to and make your money back? (That's a rhetorical question because you don't know) What if you decide you want to move? What if one of you lose your job and can't pay their share?

I'm not trying to be negative or suggesting that your friendship will not last. There are just a lot of things you need to think about and a lot of "what if's" you and your friend need to discuss before buying something.

What about buying a duplex? Would that be a possibility? Then either you could each live in one side and if one decided to move you could then rent out that side, or you could live together in one side and rent out the other to help cover your mortgage. Just an idea.

I'm not a big fan of condos personally. Most of them have very high HOA dues (if they're a good complex in a good area and they take care of the place)and you never know when you might get hit with an assessment that may not even benefit from whatever the work is that's being done.

Best of luck!

Hey Eric,

Thanks for the input! You're probably right about all of that. However, the reason I thought of a condo unit being my first purchase is because I didn't really want to deal with any maintenance issues, etc. I know that I would definitely have to research HOA's financial standing when looking for a unit to buy in order to avoid those special assessments. I wouldn't know whether to stay in the first unit I buy or move into the second when I purchased it because I've read that it's much more difficult to get a hold on a mortgage loan when you're purchasing as an investor rather than someone who's going to actually live in the property.

@EDWARD M. I thought I replied to this a couple of days ago so I apologize if this gets repeated.

First, understand that even if an HOA is financially sound that doesn't mean you won't have to pay any assessments. It may be less but if your building needs a new roof, you're going to pay for it. They may not assess for smaller projects but for the big ones, you're going to pay, regardless of financial stability.

Second, it's not necessarily more difficult to get a mortgage on an investment, you just have more strict qualification guidelines and you have to put more money down than you do on an owner-occupied property. Typically you have to put down a minimum of 20-25% on an investment. Also, if you don't have a 2-year landlord history then the expected income from the rental won't count toward your income, meaning whatever income you make from your job will have to cover your mortgage as well as the new mortgage. Once you can show you've been a landlord for at least 2 years then they will count 75% of the expected rent as income to cover your new mortgage.

Something to think about, if you are expecting prices to go up in your area. If you have lived in a property for at least 2 of the past 5 years, when you sell it then you can have a gain of up to $250,000 ($500,000 if you're married) and not pay capital gains taxes. So, if you buy the place, live in it for 2-3 years, then sell it and make $100,000, you don't have to pay any taxes on that $100,000 and then you would have a down payment for your next place as well as part of, if not the whole down payment on a rental as well. Again, just something to think about.

Best of luck!

Do it on your own. Now that I am working on my fourth property, people want to join me now, but I just think to myself,"When I make a decision on how the money is spent, or who will do the work, I REALLY don't want to argue with someone about whats best." Its like a marriage, so you need to be really compatible.

are you able to take advantage of the FHA 3.5% down program for first time buyers on duplexes/ multi-family properties? Will lenders lend to first time buyers with limited credit history to finance a multi-family investment property?

Shawn,

Where should I begin? I'm not sure whether I should first find the perfect property to buy, and then look to see whether I can work with an FHA loan, or should I look for an FHA loan first, then look for properties that qualify for it? Are FHA loans available through a certain lender or do all banks, etc. offer FHA loans?

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