Starting out decisions without a ton of money
Member since 2023 · 20 posts · 6 votes
Starting out decisions without a ton of money
Most Popular Reply
Travis TimmonsPro Member
Rental Property Investor · Ellsworth, ME · Member since 2021 · 1k+ posts · 2k+ votesSlow and steady wins the race. I'd vote for moving out of and renting your current house, getting another 5% down conventional loan, and then start saving up for the 3rd one. It's a whole lot easier to pile up 5% than to do 20% on an investment loan. If you want to go crazy, try to find a duplex for the next one, so then you have 2 rental units (current home and the other side of the duplex).
Rinse and repeat until your soon to be wife tells you that she can't take it anymore. And by the way, if you own property together, you're already married. If it takes an attorney to break up, you're married.
10 Replies
- 2yJaron WallingPro MemberRental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
@Michael Ashe To answer your question - YES there's a big difference. In most cases people tend to for go the numbers as a rental. If you didn't run the number before buying it three years ago this could be you. How did you calculate the $700-900 per month cash-flow? Odds are you're forget some expenses. Don't forget property taxes can be nearly 2X more for an investment property.
Do you have an emergency fund? Do you have cash for reserves? The equity you speak of doesn't count. That's your safety net, your wealth, and protection from loosing that 3.75% rate. In my opinion you shouldn't risk what you have to buy another property. You have to sacrifice and save for it, get creative (sub2, OPM, HM, etc.), or do a combination of those things to get a deal done in today's market.
- 2yTravis TimmonsPro MemberRental Property Investor · Ellsworth, ME · Member since 2021 · 1k+ posts · 2k+ votes
Slow and steady wins the race. I'd vote for moving out of and renting your current house, getting another 5% down conventional loan, and then start saving up for the 3rd one. It's a whole lot easier to pile up 5% than to do 20% on an investment loan. If you want to go crazy, try to find a duplex for the next one, so then you have 2 rental units (current home and the other side of the duplex).
Rinse and repeat until your soon to be wife tells you that she can't take it anymore. And by the way, if you own property together, you're already married. If it takes an attorney to break up, you're married.
- Member since 2023 · 20 posts · 6 votes2y
Quote from @Jaron Walling:
@Michael Ashe "Is there a benefit to purchasing a property specifically for rental purposes versus purchasing it as your new home and converting your current account into a rental?" - YES there is a big difference. For starters how did you calculate the $700-900 per month cash-flow? Odds are this amount is incorrect.
Do you have an emergency fund? Do you have cash for reserves? The equity you speak of doesn't count. That's your safety net, your wealth, and protection from loosing that 3.75% rate. In my opinion you shouldn't risk what you have to buy another property. You have to sacrifice and save for it, get creative (sub2, OPM, HM, etc.), or do a combination of those things to get a deal done in today's market.
The $700-$900 is just an estimate based on the cost of my current mortgage compared to what comparable properties in my zip code are renting for. I had no idea property taxes were 2X on investment properties man thank you for this information. Does that apply to my current loan on my home if I transition it into a rent but keep the current loan as is??
Our emergency funds and cash on hand in total is around 10K definitely nothing considerable but I'm planning on using most of the year to save for the down payment we would need for another property so that money isn't in the equation right now. I appreciate any feedback you've got for me man I need that realistic perspective. - Member since 2023 · 20 posts · 6 votes2yThis was the path I was leaning towards because of the difference in the down payment for each loan type like you mentioned. It just seems more obtainable since we don't have a lot of money on the sidelines currently. I'm working on saving for the down payment which for me is a positive because from everything I've heard we are looking for rate decreases in the next few quarters. Thanks for the feedback man
Quote from @Travis Timmons:
Slow and steady wins the race. I'd vote for moving out of and renting your current house, getting another 5% down conventional loan, and then start saving up for the 3rd one. It's a whole lot easier to pile up 5% than to do 20% on an investment loan. If you want to go crazy, try to find a duplex for the next one, so then you have 2 rental units (current home and the other side of the duplex).
Rinse and repeat until your soon to be wife tells you that she can't take it anymore. And by the way, if you own property together, you're already married. If it takes an attorney to break up, you're married.
- 2yJaron WallingPro MemberRental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
@Michael Ashe I was asking the same questions when I started out BUT I asked them before I owned any real estate. I encourage you to read and research how to run the numbers. You can create your own spreadsheet or use the BP calculators they provide. Without actual market numbers (market rent, property tax, vacancy, capex, repairs, insurance, etc.) you can't make educated decisions about moving and renting your property. Cheers.
- Member since 2023 · 20 posts · 6 votes2yThanks man I appreciate this. I'll get to work on getting the numbers on my area so I can really understand what in working with. I definitely want to be as informed as possible before making any decisions and I've got a year to research and save before Im ready to make any decisions. Thank you for the feedback
Quote from @Jaron Walling:
@Michael Ashe I was asking the same questions when I started out BUT I asked them before I owned any real estate. I encourage you to read and research how to run the numbers. You can create your own spreadsheet or use the BP calculators they provide. Without actual market numbers (market rent, property tax, vacancy, capex, repairs, insurance, etc.) you can't make educated decisions about moving and renting your property. Cheers.
- Real Estate Agent · Puyallup, WA · Member since 2022 · 551 posts · 379 votes2y
I would rent out your current residence, use either conventional or FHA financing to get 3.5%-5% down and house hack your next investment property. You can do this for 1-4 units so think... You could be just a few months away from owning 5 doors. Start of your empire right there!
- Lender · Austin, TX · Member since 2021 · 448 posts · 441 votes2y
Quote from @Michael Ashe:
Quote from @Jaron Walling:
@Michael Ashe "Is there a benefit to purchasing a property specifically for rental purposes versus purchasing it as your new home and converting your current account into a rental?" - YES there is a big difference. For starters how did you calculate the $700-900 per month cash-flow? Odds are this amount is incorrect.
Do you have an emergency fund? Do you have cash for reserves? The equity you speak of doesn't count. That's your safety net, your wealth, and protection from loosing that 3.75% rate. In my opinion you shouldn't risk what you have to buy another property. You have to sacrifice and save for it, get creative (sub2, OPM, HM, etc.), or do a combination of those things to get a deal done in today's market.
The $700-$900 is just an estimate based on the cost of my current mortgage compared to what comparable properties in my zip code are renting for. I had no idea property taxes were 2X on investment properties man thank you for this information. Does that apply to my current loan on my home if I transition it into a rent but keep the current loan as is??
Our emergency funds and cash on hand in total is around 10K definitely nothing considerable but I'm planning on using most of the year to save for the down payment we would need for another property so that money isn't in the equation right now. I appreciate any feedback you've got for me man I need that realistic perspective.I think Jaron is referring to the homestead exemption, which gives you a tax break if it is an owner-occupied property. You would still get it on the next property you live in, but not whatever one you keep as a rental. If you are curious, you can pull the tax bill off the tax accessor's website and see what your homestead exemption is. When running the cash flow on a deal, I suggest using the DSCR ratio at a bare minimum, but realistically you want to account for cap ex, repairs, vacancy, etc.
- Lender · Austin, TX · Member since 2021 · 448 posts · 441 votes2y
Also, something to consider... if you currently have your home with an FHA loan and your girlfriend is not on the mortgage... you can have her take out her FHA loan on a new house hack. Once married you only get one FHA per couple, so (not that I am encouraging it) but it is a great way to lever up to $2m of debt/assets with only 2.5% down
- 2yWale LawalBusiness MemberReal Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes
Congratulations on exploring real estate investing as a couple! Your circumstance requires some important judgements and considerations. The following might be your next steps:
Financial Review: Evaluate your financial condition, taking into account the down payment, probable financing terms, and overall affordability of a new house.
Research Local Real Estate Markets: Learn about the local real estate markets in which you are interested in owning a rental property. Recognise the opportunity for rental income and property appreciation.
Speak with a Mortgage specialist: Contact a mortgage specialist to discuss financing alternatives for both scenarios. Understand the terms and conditions for financing an investment property.
Tax Consultation: Speak with a tax specialist to better understand the tax consequences of each scenario. This covers possible deductions, depreciation, and capital gains calculations.
Discuss Long-Term objectives: Talk to your spouse about your long-term objectives, risk tolerance, and property management preferences.
Ultimately, the selection will be based on your own circumstances, goals, and preferences. To make well-informed judgements, consider consulting with real estate specialists, mortgage advisers, and tax professionals.
NETWORTH BUILDERS5236 Reviews
Join the conversationCreate a free account to reply, vote on answers and follow this thread.