First Post College Investment- FHA 203K House Hack

Investor · Thomasville, GA · Member since 2024 · 15 posts · 11 votes

Hello everyone! My name is Josh Ricord and I am a recent Biomechanics and MBA graduate and retired student athlete as of 2023. I am currently in my first year of my W2 job (post graduation), and after a year of listening to Bigger Pockets, getting my real estate license, and allocating funds, I have finally decided to dive head first into my first investment. I have 20k saved and plan to use an FHA 203K loan and house hack to net zero/cash flow minimally on my first investment. I am using my newfound access to the MLS as a tool to source good deals and make educated and sound investment decisions. As a college athlete at a smaller D2 School in Georgia, there is a strong market for student housing that has yet to be met in my area. With tons of ex teammates and international students looking for housing in our small town environment, there is a untapped avenue to succeed. My primary goal is to net zero with house hacking, renovate to appreciate, and refinance after a year, pulling built renovation/sweat equity. This in essence to pull liquid cash out for a second investment, and transition the property into a long term rental. I wanted to use my introductory post on Bigger Pockets to prompt feedback and advice on my current foundational plan from industry professionals that can guide me on my journey to success.

- How can I maximize my strategy for investment longevity? How feasible is this plan from the POV of a seasoned investor?

- What is some good general preliminary advice when jumping into your first investment?

- How can I use my real estate license as an advantage to the best of my ability?

Thank you so much for taking the time to read and respond to this post, and I look forward to networking with you all in the future. Thank you!

- Josh Ricord

3 Reply

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Matthew PorcaroBusiness Member

Lender · Long Island, NY · Member since 2016 · 456 posts · 336 votes

@Josh Ricord

Hey Josh, congrats on graduating with an impressive degree while also being a college athlete. That’s a lot to juggle and you should be proud of your work ethic.

I’ve seen a big commonality between real estate investors and them being collegiate athletes. I think it’s the fact that college athletes are coachable and execute quickly. They also tend to understand delayed gratification better than most haha.

To answer your questions:

1. The best way to maximize your strategy is to ensure that you build significant equity on your first house hack. Using the 203k will 100% help you with this. Just focus on building as much equity as possible. Ideally you want to be all in (purchase + renovation budget) for less than 80% of the after renovated value of the property.

This will give you the ability to tap that equity later if needed to go purchase additional properties.

2. Best advice about jumping in is just that. JUMP IN. do not make my mistake and consume too much content or videos or podcasts. Just trust the numbers and make tons of offers. Don’t be afraid of rejection. Just go for it. You will learn the most by doing. Not studying. Again, something a college athlete would know well.

3. The way I would use your MLS access is to just peel through the MLS daily looking for distressed assets. Look for properties that need work. Set filters for: as-is, fixer upper, 203k, handyman, motivated, negotiable, TLC, cash, etc.

Those keywords usually mean there’s some motivation there. Motivation to sell ideally will get you into these properties at a lower cost basis which means more cash flow and equity.

Also, look for long days on market, expired listings, etc.

I think you’re definitely on the right track and are definitely way ahead of where I was at when I started.

Just know with something like a 203k, you’re putting such little down, it’s soo hard to lose.

Especially if you stick to your numbers.

Biggest piece of advice I give on 203k’s is just make sure you use the right team and use them in the right order.

Get a DEEPLY experienced reno loan lender. Most will say they can do them, but not many are experts. You want to get the experts.

From there, once you get under contract, get your 203k consultant in the property immediately to do their inspection/schedule of repairs write up. Only then, bring in your contractors to bid that scope of work.

This is one of the biggest mistakes I see people make. They get their one contractor they know to give a bid, and if it’s off, it makes it tricky to solve. Get multiple contractor bids 3-5 ideally.

Then you’ll know that your pricing makes sense.

Hope this clarifies a bit for ya. Best of luck!

The 203k Way

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Paul Welden
Real Estate Agent · Tempe, AZ · Member since 2011 · 1k+ posts · 543 votes
2y
@Josh Ricord
How much of your 20k savings will you use for the down payment + closing costs?
When you want to buy another property, your income must be sufficient to cover both mortgage payments (the new property mortgage + the higher balance on your cashout refi mortgage).
3 Reply
Josh Ricord
OP
Investor · Thomasville, GA · Member since 2024 · 15 posts · 11 votes
2y
@Paul Welden Paul, I plan on using around 10-12k of my savings on a down payment + closing (will escape buyer agent costs as I'll be representing myself.) Average comps of sound 3 bed 2 bath homes sit in the 250,000/300,00 range in my area. I will set aside the other 8k for cap ex/nest egg. Plan on this being a live in renovation, ultimately preparing for the fall semester in August when tenants would move in.
For as future investments, prospectively speaking, if I am able to Net 0 on my primary residence, build sweat equity and then pay into a second investment savings fund; my goal is too get into a second investment after year one. For context I make 80k at my W2 job, so it allows some room for investment savings, but nothing crazy.
Let me know what you think! Would a turn key residence be better for my first house hack compared to a simple renovation backed by a FHA 203K loan? What advice do you have for how to attack getting this first investment? I really appreciate the time you've taken to respond to my post and any advice/knowledge you'd be willing to share. Thanks Paul!
0 Reply
Tanner Lewis
Lender · Austin, TX · Member since 2021 · 447 posts · 441 votes
2y
If you are looking for an FHA loan, you will have 2.5% equity to start out, meaning that even if you add equity to the deal, it would not be nearly enough to pull out if you refinance. If you use the 203k, I would use the rehab funds to rehab the property so you can increase rents and then sit on the deal until you build enough equity. It would probably be best as a strategy to reduce your living expenses so you can save up for the next deal.
1 Reply
Josh Ricord
OP
Investor · Thomasville, GA · Member since 2024 · 15 posts · 11 votes
2y
@Tanner Lewis
Thanks for reaching out Tanner! A 203K loan with the small amount of equity upfront would be the way I am leaning towards currently. I think building equity through the rehab itself and then house hacking each room would give me the biggest avenue to maximize savings/equity for that potential second property. I think as long as I can net zero and build sweat equity, it would give me the best avenue to really build another investment fund. If you have any other pointers or starting tips, feel free to reach out. Thank you again sir!
0 Reply
Helen Barton
Member since 2024 · 1 post · 1 vote
2y
Josh, it sounds like you've laid a solid foundation for your journey into real estate investment with a clear plan and strategic goals. Leveraging an FHA 203K loan for house hacking is a smart move, especially with your unique position in a market with unmet demand for student housing page link. Your real estate license not only gives you direct access to the MLS for sourcing deals but also positions you to negotiate and understand the market dynamics firsthand. My advice would be to focus on building a strong network within the real estate community and to always keep learning from each transaction. Your plan is ambitious and seems quite feasible, given your preparation and understanding of the local market needs. Best of luck, Josh!
1 Reply
Josh Ricord
OP
Investor · Thomasville, GA · Member since 2024 · 15 posts · 11 votes
2y
@Helen Barton
Thank you for you encouragement and response Helen! I definitely will keep that advice in mind as I begin to network with my peers in both the reality and investment industries!
0 Reply
Matthew PorcaroBusiness Member
Lender · Long Island, NY · Member since 2016 · 456 posts · 336 votes
2y
@Josh Ricord
Hey Josh, congrats on graduating with an impressive degree while also being a college athlete. That’s a lot to juggle and you should be proud of your work ethic.
I’ve seen a big commonality between real estate investors and them being collegiate athletes. I think it’s the fact that college athletes are coachable and execute quickly. They also tend to understand delayed gratification better than most haha.
To answer your questions:
1. The best way to maximize your strategy is to ensure that you build significant equity on your first house hack. Using the 203k will 100% help you with this. Just focus on building as much equity as possible. Ideally you want to be all in (purchase + renovation budget) for less than 80% of the after renovated value of the property.
This will give you the ability to tap that equity later if needed to go purchase additional properties.
2. Best advice about jumping in is just that. JUMP IN. do not make my mistake and consume too much content or videos or podcasts. Just trust the numbers and make tons of offers. Don’t be afraid of rejection. Just go for it. You will learn the most by doing. Not studying. Again, something a college athlete would know well.
3. The way I would use your MLS access is to just peel through the MLS daily looking for distressed assets. Look for properties that need work. Set filters for: as-is, fixer upper, 203k, handyman, motivated, negotiable, TLC, cash, etc.
Those keywords usually mean there’s some motivation there. Motivation to sell ideally will get you into these properties at a lower cost basis which means more cash flow and equity.
Also, look for long days on market, expired listings, etc.
I think you’re definitely on the right track and are definitely way ahead of where I was at when I started.
Just know with something like a 203k, you’re putting such little down, it’s soo hard to lose.
Especially if you stick to your numbers.
Biggest piece of advice I give on 203k’s is just make sure you use the right team and use them in the right order.
Get a DEEPLY experienced reno loan lender. Most will say they can do them, but not many are experts. You want to get the experts.
From there, once you get under contract, get your 203k consultant in the property immediately to do their inspection/schedule of repairs write up. Only then, bring in your contractors to bid that scope of work.
This is one of the biggest mistakes I see people make. They get their one contractor they know to give a bid, and if it’s off, it makes it tricky to solve. Get multiple contractor bids 3-5 ideally.
Then you’ll know that your pricing makes sense.
Hope this clarifies a bit for ya. Best of luck!
The 203k Way
Website View Page
4 Reply
Ash Hegde
Lender · Fort Lauderdale, FL (Lending in FL CT GA MI PA) · Member since 2022 · 470 posts · 349 votes
2y
Welcome aboard Josh! I think you're on the right track, a net-zero living expense is awesome and will do a lot for your future investing endeavors. How quick you can scale will depend on your future work income as well as rent and equity appreciation in the property, but either way this is a good start.
One option with your real estate license - if you don't feel confident in finding the property yourself, you can use it to refer yourself to a more seasoned investor agent and get some of the commission.
1 Reply
Brie SchmidtBusiness Member
Moderator
Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
2y
Quote from @Josh Ricord:

Hello everyone! My name is Josh Ricord and I am a recent Biomechanics and MBA graduate and retired student athlete as of 2023. I am currently in my first year of my W2 job (post graduation), and after a year of listening to Bigger Pockets, getting my real estate license, and allocating funds, I have finally decided to dive head first into my first investment. I have 20k saved and plan to use an FHA 203K loan and house hack to net zero/cash flow minimally on my first investment. I am using my newfound access to the MLS as a tool to source good deals and make educated and sound investment decisions. As a college athlete at a smaller D2 School in Georgia, there is a strong market for student housing that has yet to be met in my area. With tons of ex teammates and international students looking for housing in our small town environment, there is a untapped avenue to succeed. My primary goal is to net zero with house hacking, renovate to appreciate, and refinance after a year, pulling built renovation/sweat equity. This in essence to pull liquid cash out for a second investment, and transition the property into a long term rental. I wanted to use my introductory post on Bigger Pockets to prompt feedback and advice on my current foundational plan from industry professionals that can guide me on my journey to success.

- How can I maximize my strategy for investment longevity? How feasible is this plan from the POV of a seasoned investor?

- What is some good general preliminary advice when jumping into your first investment?

- How can I use my real estate license as an advantage to the best of my ability?

Thank you so much for taking the time to read and respond to this post, and I look forward to networking with you all in the future. Thank you!

- Josh Ricord

I would consider the homestyle renovation loan which is 5% down and less expensive that a 203k. This can also be done up to 10 times as long as you complete the 1 year occupancy agreement each time.
If I were you I would use an investor friendly real estate agent for your first one. I know you are licensed and can ear your own commission but an experienced agent can save you tens of thousands of dollars in mistakes. So for the first one I would be less concerned about earning a commission and more concerned with learning from someone experienced.
Podcast Guest on Show #132
Second City Real Estate4.821 Reviews
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1 Reply
Wale LawalBusiness Member
Real Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes
2y
@Josh Ricord
Welcome to the world of real estate investing! It sounds like you have a solid plan in place, and I'll provide some insights and advice based on your questions:

Maximizing Investment Longevity:
It's a smart move that you're house hacking with an FHA 203K loan, remodeling for appreciation, and then refinancing to extract equity for other investments. Make an effort to gradually assemble a varied portfolio in order to optimize lifespan. To disperse risk and improve long-term growth potential, think about investing in a variety of property kinds, regions, and asset classes.

Feasibility of the Plan:
An experienced investor would see your idea as well-thought-out and doable, especially in light of the local need for student accommodation. To maintain profitability, it's essential to carry out in-depth market research, closely monitor remodeling expenditures, and do due diligence on prospective properties.

Preliminary Advice for First-Time Investors:
Become knowledgeable: By reading books, listening to podcasts, using internet tools, and connecting with seasoned investors, you may keep up your real estate investment education.
Start modest: Start small and increase your investments gradually as you acquire confidence and expertise.
Network: Make connections with other investors, real estate experts, and mentors who can offer advice, encouragement, and insightful perspectives.
Make a good plan: Make a thorough investment strategy with precise objectives, deadlines, and exit tactics. Review your strategy often and make any necessary adjustments.

Using Your Real Estate License to Your Advantage:
You have access to the MLS and valuable market data, which can help you identify potential investment opportunities and negotiate favorable deals.
Leverage your network
Offer your expertise and assistance to clients and investors

Overall, it seems like you're on the right track with your investment plan. Stay focused, continue learning, and don't hesitate to seek guidance from experienced investors or mentors along the way. Best of luck on your real estate journey, and feel free to reach out if you have any further questions!
[email protected]832-776-9582 Podcast Guest on Show #469
NETWORTH BUILDERS5236 Reviews
Website View Page
2 Reply
Paul Welden
Real Estate Agent · Tempe, AZ · Member since 2011 · 1k+ posts · 543 votes
2y
Quote from @Josh Ricord:

@Paul Welden Paul, I plan on using around 10-12k of my savings on a down payment + closing (will escape buyer agent costs as I'll be representing myself.) Average comps of sound 3 bed 2 bath homes sit in the 250,000/300,00 range in my area. I will set aside the other 8k for cap ex/nest egg. Plan on this being a live in renovation, ultimately preparing for the fall semester in August when tenants would move in.
For as future investments, prospectively speaking, if I am able to Net 0 on my primary residence, build sweat equity and then pay into a second investment savings fund; my goal is too get into a second investment after year one. For context I make 80k at my W2 job, so it allows some room for investment savings, but nothing crazy.
Let me know what you think! Would a turn key residence be better for my first house hack compared to a simple renovation backed by a FHA 203K loan? What advice do you have for how to attack getting this first investment? I really appreciate the time you've taken to respond to my post and any advice/knowledge you'd be willing to share. Thanks Paul!

@Josh Ricord
Your strategy may be tight financially, but if you can be strict with minimizing your extra curricular spending and keep saving money, you should be ok.
You'll need to interview lenders to ensure they are well-versed with the 203k and work well with your personality. There are 2 databases of these 203k lenders called the FHA Lender List and the 203k Endorsement Summary Report.
There are also contractors who have earned the accreditation as a Certified 203k Contractor that are not only educated on the 203k but also financially vetted.
Go out there, find your "diamond in the rough" and start creating your generational wealth!
Hope this helps
3 Reply
Josh Ricord
OP
Investor · Thomasville, GA · Member since 2024 · 15 posts · 11 votes
2y
@Matthew Porcaro
Thank you so much for reaching out and tossing both some encouragement and some advice. Like you said, I will devote more emphasis on evaluating deals, making more competitive offers, and doing my due diligence when sourcing a contractor that can parallel my goals. Can't wait to take these suggestions and apply it to my current plan. Thank you so much again!
1 Reply
Josh Ricord
OP
Investor · Thomasville, GA · Member since 2024 · 15 posts · 11 votes
2y
@Ash Hegde
Thanks for reaching out man! Definitely going to place emphasis on the net zero goal and general investment appreciation. That sets up a more feasible goal for my first investment, while allowing my to store funds both for cap ex and also that second investment. Once again, I appreciate the engagement!
1 Reply
Josh Ricord
OP
Investor · Thomasville, GA · Member since 2024 · 15 posts · 11 votes
2y
@Brie Schmidt
Brie, thank you for stopping by and giving me some extremely helpful tips. Like you referenced in your original post, the homestyle renovation loan, with similar down payment options and more flexibility for future investments is definitely an avenue I am now adding to my list for consideration. I may also feel out some investor friendly realtors to potentially advise on this first deal. Considering a seasoned agent who could possibly suggest contractors, lenders, etc. may be more beneficial than both the commission/savings on the front end. Thank you once again for your advice as it has assisted in sharpening my tools and perspective related to my first deal!
1 Reply
Josh Ricord
OP
Investor · Thomasville, GA · Member since 2024 · 15 posts · 11 votes
2y
Quote from @Wale Lawal:

@Josh Ricord
Welcome to the world of real estate investing! It sounds like you have a solid plan in place, and I'll provide some insights and advice based on your questions:

Maximizing Investment Longevity:
It's a smart move that you're house hacking with an FHA 203K loan, remodeling for appreciation, and then refinancing to extract equity for other investments. Make an effort to gradually assemble a varied portfolio in order to optimize lifespan. To disperse risk and improve long-term growth potential, think about investing in a variety of property kinds, regions, and asset classes.

Feasibility of the Plan:
An experienced investor would see your idea as well-thought-out and doable, especially in light of the local need for student accommodation. To maintain profitability, it's essential to carry out in-depth market research, closely monitor remodeling expenditures, and do due diligence on prospective properties.

Preliminary Advice for First-Time Investors:
Become knowledgeable: By reading books, listening to podcasts, using internet tools, and connecting with seasoned investors, you may keep up your real estate investment education.
Start modest: Start small and increase your investments gradually as you acquire confidence and expertise.
Network: Make connections with other investors, real estate experts, and mentors who can offer advice, encouragement, and insightful perspectives.
Make a good plan: Make a thorough investment strategy with precise objectives, deadlines, and exit tactics. Review your strategy often and make any necessary adjustments.

Using Your Real Estate License to Your Advantage:
You have access to the MLS and valuable market data, which can help you identify potential investment opportunities and negotiate favorable deals.
Leverage your network
Offer your expertise and assistance to clients and investors

Overall, it seems like you're on the right track with your investment plan. Stay focused, continue learning, and don't hesitate to seek guidance from experienced investors or mentors along the way. Best of luck on your real estate journey, and feel free to reach out if you have any further questions!

@Wale Lawal
Thank you for responding to my discussion Wale! I truly appreciate you encouragement, advice, and future pointers as I jump headfirst into this game we call real estate. I loved your points on sharpening your skills through education, making educated decisions through correctly running numbers on both renos/investments, and then your suggestions for the future landscape. These are all things that have been reinforced as a foundation when reading your response. Thank you so much for taking the time to share!
1 Reply
Josh Ricord
OP
Investor · Thomasville, GA · Member since 2024 · 15 posts · 11 votes
2y
Quote from @Paul Welden:

Quote from @Josh Ricord:

@Paul Welden Paul, I plan on using around 10-12k of my savings on a down payment + closing (will escape buyer agent costs as I'll be representing myself.) Average comps of sound 3 bed 2 bath homes sit in the 250,000/300,00 range in my area. I will set aside the other 8k for cap ex/nest egg. Plan on this being a live in renovation, ultimately preparing for the fall semester in August when tenants would move in.
For as future investments, prospectively speaking, if I am able to Net 0 on my primary residence, build sweat equity and then pay into a second investment savings fund; my goal is too get into a second investment after year one. For context I make 80k at my W2 job, so it allows some room for investment savings, but nothing crazy.
Let me know what you think! Would a turn key residence be better for my first house hack compared to a simple renovation backed by a FHA 203K loan? What advice do you have for how to attack getting this first investment? I really appreciate the time you've taken to respond to my post and any advice/knowledge you'd be willing to share. Thanks Paul!

@Josh Ricord
Your strategy may be tight financially, but if you can be strict with minimizing your extra curricular spending and keep saving money, you should be ok.
You'll need to interview lenders to ensure they are well-versed with the 203k and work well with your personality. There are 2 databases of these 203k lenders called the FHA Lender List and the 203k Endorsement Summary Report.
There are also contractors who have earned the accreditation as a Certified 203k Contractor that are not only educated on the 203k but also financially vetted.
Go out there, find your "diamond in the rough" and start creating your generational wealth!
Hope this helps

@Paul Welden
Paul, thank you so much again for reaching out and sharing those resources with me. Definitely something I will be looking at in my journey to this first investment. I will definitely work to limit expenses and tuck away as much cushion funds for the upfront and during reno expenses. Can't wait to keep you updated on the journey. Cheers!

1 Reply
Jason Allen
Attorney · Columbus, OH · Member since 2023 · 193 posts · 145 votes
2y
You know your market better than us. If you think you can fill it with your estimated rents, go for it. You might want to start with a small single family (like a 3 bed 1 bath) and fill the other rooms with your friends.

Preliminary advice - run the numbers, if it makes sense jump into it, but don't be afraid to shop.
You should use your real estate license for the down payment. I believe FHA allows 3.5% down? You automatically have 3 percent down as a commission.
1 Reply
Wale LawalBusiness Member
Real Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes
2y
Quote from @Josh Ricord:

Quote from @Wale Lawal:

@Josh Ricord
Welcome to the world of real estate investing! It sounds like you have a solid plan in place, and I'll provide some insights and advice based on your questions:

Maximizing Investment Longevity:
It's a smart move that you're house hacking with an FHA 203K loan, remodeling for appreciation, and then refinancing to extract equity for other investments. Make an effort to gradually assemble a varied portfolio in order to optimize lifespan. To disperse risk and improve long-term growth potential, think about investing in a variety of property kinds, regions, and asset classes.

Feasibility of the Plan:
An experienced investor would see your idea as well-thought-out and doable, especially in light of the local need for student accommodation. To maintain profitability, it's essential to carry out in-depth market research, closely monitor remodeling expenditures, and do due diligence on prospective properties.

Preliminary Advice for First-Time Investors:
Become knowledgeable: By reading books, listening to podcasts, using internet tools, and connecting with seasoned investors, you may keep up your real estate investment education.
Start modest: Start small and increase your investments gradually as you acquire confidence and expertise.
Network: Make connections with other investors, real estate experts, and mentors who can offer advice, encouragement, and insightful perspectives.
Make a good plan: Make a thorough investment strategy with precise objectives, deadlines, and exit tactics. Review your strategy often and make any necessary adjustments.

Using Your Real Estate License to Your Advantage:
You have access to the MLS and valuable market data, which can help you identify potential investment opportunities and negotiate favorable deals.
Leverage your network
Offer your expertise and assistance to clients and investors

Overall, it seems like you're on the right track with your investment plan. Stay focused, continue learning, and don't hesitate to seek guidance from experienced investors or mentors along the way. Best of luck on your real estate journey, and feel free to reach out if you have any further questions!

@Wale Lawal
Thank you for responding to my discussion Wale! I truly appreciate you encouragement, advice, and future pointers as I jump headfirst into this game we call real estate. I loved your points on sharpening your skills through education, making educated decisions through correctly running numbers on both renos/investments, and then your suggestions for the future landscape. These are all things that have been reinforced as a foundation when reading your response. Thank you so much for taking the time to share!

I am glad I was able to help. Keep us posted on your RE Investing Progress!
[email protected]832-776-9582 Podcast Guest on Show #469
NETWORTH BUILDERS5236 Reviews
Website View Page
1 Reply
Trey Belmore
Lender · Dallas, TX · Member since 2023 · 18 posts · 7 votes
2y
Hi Josh- this sounds like a great plan to get started in real estate investing! A couple things to keep in mind that you may have already vetted out but wanted to bring to your attention:
1) Have you already selected a contractor who can help prepare the bids for you when you identify a property? FHA 203K can be pretty involved and it is important to have all your ducks in a row to ensure you're setting yourself up for success. Have you spoken to a trusted lender about the process? FHA 203K loans will typically require a 203K consultant to overview the project as well. your lender should be able to assist with this. There is always an option to go with a Conventional Homestyle renovation loan. This is not as involved as a 203K renovation loan, but it does require 5% down versus 3.5% down. Here is a 203k consultant list: https://entp.hud.gov/idapp/html/f17cnsltdata.cfm
2) Are you prepared to cover the closing costs in addition to the down payment? Closing costs can be another 2-3% of the sales price in addition to the 3.5% down payment. However, there are strategies to get the seller to cover some or all of the closing costs through seller concessions which would reduce your out of pocket expense.
3) I would use your real estate license and MLS access to find comps in the areas you're interested in to estimate the ARV of any prospective homes. This is super valuable information and insight when searching for your first investment property. You have full access to see what similar homes with similar finish outs of your final product are selling for to back into an accurate ARV.
4) Lastly, as someone who has house hacked myself I would make sure you understand how a lender will analyze your second property. Would your intent be to purchase this property and live there for a year then rent it out to purchase another primary residence? If this is the case, it is important to note that a lender will generally need a 12 month lease on the departing residence in order to use 75% of the lease amount to offset that departing mortgage payment. It is a great plan to rent it out now room by room to maximize profit, but this is difficult to source from a lender's perspective when it comes time to purchase a second home. Hopefully, that makes sense. if not, feel free to reach out and I can certainly expand on it.
2 Reply
Josh Ricord
OP
Investor · Thomasville, GA · Member since 2024 · 15 posts · 11 votes
2y
Quote from @Jason Allen:

You know your market better than us. If you think you can fill it with your estimated rents, go for it. You might want to start with a small single family (like a 3 bed 1 bath) and fill the other rooms with your friends.

Preliminary advice - run the numbers, if it makes sense jump into it, but don't be afraid to shop.
You should use your real estate license for the down payment. I believe FHA allows 3.5% down? You automatically have 3 percent down as a commission.

@Jason Allen
Thanks for reaching out sir! I am currently shooting for a 3 Bed, 2 Bath with good bones and some leeway to transform it cosmetically/update. I will definitely be placing heightened emphasis on running my numbers accurately and realistically. Also, good point on the commission I didn't think of that! If possible, sourcing and working the deal myself may eliminate some of those hard cash requirements on the front end. Thanks again for stopping by and dropping some nuggets of knowledge!

1 Reply
Jason Allen
Attorney · Columbus, OH · Member since 2023 · 193 posts · 145 votes
2y
Quote from @Josh Ricord:

Quote from @Jason Allen:

You know your market better than us. If you think you can fill it with your estimated rents, go for it. You might want to start with a small single family (like a 3 bed 1 bath) and fill the other rooms with your friends.

Preliminary advice - run the numbers, if it makes sense jump into it, but don't be afraid to shop.
You should use your real estate license for the down payment. I believe FHA allows 3.5% down? You automatically have 3 percent down as a commission.

@Jason Allen
Thanks for reaching out sir! I am currently shooting for a 3 Bed, 2 Bath with good bones and some leeway to transform it cosmetically/update. I will definitely be placing heightened emphasis on running my numbers accurately and realistically. Also, good point on the commission I didn't think of that! If possible, sourcing and working the deal myself may eliminate some of those hard cash requirements on the front end. Thanks again for stopping by and dropping some nuggets of knowledge!

You got it! Bets of luck!
1 Reply
Josh Ricord
OP
Investor · Thomasville, GA · Member since 2024 · 15 posts · 11 votes
2y
Quote from @Trey Belmore:

Hi Josh- this sounds like a great plan to get started in real estate investing! A couple things to keep in mind that you may have already vetted out but wanted to bring to your attention:
1) Have you already selected a contractor who can help prepare the bids for you when you identify a property? FHA 203K can be pretty involved and it is important to have all your ducks in a row to ensure you're setting yourself up for success. Have you spoken to a trusted lender about the process? FHA 203K loans will typically require a 203K consultant to overview the project as well. your lender should be able to assist with this. There is always an option to go with a Conventional Homestyle renovation loan. This is not as involved as a 203K renovation loan, but it does require 5% down versus 3.5% down. Here is a 203k consultant list: https://entp.hud.gov/idapp/html/f17cnsltdata.cfm
2) Are you prepared to cover the closing costs in addition to the down payment? Closing costs can be another 2-3% of the sales price in addition to the 3.5% down payment. However, there are strategies to get the seller to cover some or all of the closing costs through seller concessions which would reduce your out of pocket expense.
3) I would use your real estate license and MLS access to find comps in the areas you're interested in to estimate the ARV of any prospective homes. This is super valuable information and insight when searching for your first investment property. You have full access to see what similar homes with similar finish outs of your final product are selling for to back into an accurate ARV.
4) Lastly, as someone who has house hacked myself I would make sure you understand how a lender will analyze your second property. Would your intent be to purchase this property and live there for a year then rent it out to purchase another primary residence? If this is the case, it is important to note that a lender will generally need a 12 month lease on the departing residence in order to use 75% of the lease amount to offset that departing mortgage payment. It is a great plan to rent it out now room by room to maximize profit, but this is difficult to source from a lender's perspective when it comes time to purchase a second home. Hopefully, that makes sense. if not, feel free to reach out and I can certainly expand on it.

Goodmorning sir! Thank you reaching out and passing along not only some great advice, but some thought provoking points.
1) Fantastic Point. I think early investors like myself like to think in theory versus actually getting all our ducks in a row to make valuable and educated action. I will most definitely work to start sourcing good, investor friendly lenders and use the resources you provided to find good 203K advisors. That really brings into perspective it’s more than just a plan- you need smart and tangible action. Do you have a plan suggestions/small tips as I look for my first investment?

2) I was looking to represent myself on the buyer side to reduce some of these upfront hard money costs, but as a new investor I’m stuck between using a seasoned realtor or leveraging my current position. If electing for the realtor option, I can work with him/her to define some strategies in order to get the seller to cover some of the closing costs. Ultimately I can be more conscious of these additional hard money costs, and allocate funds accordingly.
3) I completely agree here also. I am going to allocate some time daily to just run numbers on active deals. This will surely make me sharper when it comes to shooting offers on good deals that hopefully will yield good return for my first investment/primary residence. What is some primary things you look for when analyzing a deal?
4) Very interesting points, I have never thought of it that way. Would I need to build more tangible equity in the property to make it more advantageous for lenders to authorize a refinance/ secondary loan? What advice to do you have to navigating that obstacle?
Thank you so much for not only tossing over some encouragement, but also providing some situational reality as well. It’s easy to speak of a plan, but to execute with precision and tangible educated thought is hard. Appreciate it so much, and will keep you updated on my future endeavors!
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Trey Belmore
Lender · Dallas, TX · Member since 2023 · 18 posts · 7 votes
2y
1) Best first step here is forging a relationship with a good contractor you can trust and rely on. The best way to add equity in your first deal is through sweat equity where you can actually do some of the renovations and you are not paying full cost for the renovation project, but this is highly dependent on the condition of the property you identify. For example, I have several clients who plan to put in sweat equity into their investment but the property itself must be in a certain condition to obtain FHA or Conventional financing, so you could always get a property under contract then perform the appraisal. The appraisal will uncover if any items need addressed prior to meeting property conditions per agency guidelines (FHA or Conv). You could always then utilize the renovation loan to do the minimum repairs to make the property compliant. Once you purchase you can then put in some sweat equity, but this is also dependent on your skill set and other help you have. You could also elect to do a full on renovation loan but just be aware that you will be paying full cost since it requires a bid from a third party contractor. There are several ways to approach this. I would be happy to discuss further.
3) Things I would look for are school districts, proximity to colleges/hospitals/entertainment. I would also look into how challenging certain city codes are with short term rentals, permitting, etc. I'm in the Dallas area and there are definitely cities that are known to be more friendly for these type of things. But also since you will be living in the property you also want to make sure you like it and are okay living there for 12+ months. Real estate is a long game and if you choose wisely and are patient it will likely reap future payoffs.
4) I would just make sure you have a long-term plan for property #2. For example, does your income support carrying two mortgages OR will you need the rental income from property #1 to offset the total debt you're carrying per month. If it is the latter then the easiest way around this is obtaining a 12 month lease on property #1. In this case, you can use 75% of the lease amount to offset that mortgage payment. This makes qualifying for property #2 much easier. I did this with all three residential properties I currently own. Bought #1, lived in it for a year then got a lease on property #1, then purchased property #2 as a primary with minimum down. Did this again with property #3. I would be happy to chat further.
Hopefully, this helps. Sorry for the delay. Best of luck!
1 Reply
Perry FarellaPro Member
Lender · Chicago · Member since 2024 · 15 posts · 10 votes
2y
Josh- Congratulations on your beginning real estate journey. Most of my most successful friends have started out with a multi unit , say 3 or 4 units and done a rehab on it and living there for 12 months. Not sure what is available in your market but often there may be an estate sale where the property has been neglected and the heirs just want their money so you may purchase at a discount. Or perhaps a foreclosure HUD is selling on hudhomestore dot com.

On 203k you can buy with 3.50% down and get a seller credit for up to 6% of the sale price toward all closing costs and some of it can be used to buy the interest rate lower as well. Your commission can be used as down payment so try to do it in your name. There is a twist though with FHA on 3 and 4 unit buildings in that they want it to meet a Self Sufficiency rule in case of default. Meaning that 75% of the rents on all 3 or 4 units, even the owners unit, must at least equal the total monthly payment. That way if HUD ever has to take over after a default/foreclosure, it at least pays for itself until HUD sells it. This regulation can be difficult to meet with just 3.50% down so carefully research rents. This is true even if you buy a derelict , empty property. The Appraiser will find rents on the local MLS ( and only on MLS) that are renovated and similar size as examples to support opinion of market rate rent to meet the Self Sufficiency rule or not. This has nothing to do with your personal income, it has everything to do with the performance of the property. You could make a trillion dollars a month in your job and the loan will be denied if the property does not meet Self Sufficiency rule. If you do a conventional HomeStyle renovations loan it does not have this Self Sufficiency rule on 3 or 4 units. But minimum down payment can vary between 3% and 5%.
I do have a friend who does 12 month leases for each bedroom in his investment single family homes and a lender will accept that rent. He does quite well with a 3 or 4 or 5 bedroom single family house often with each bedroom generating 1000 or more in rent and they share the common areas. This works only if a 12 month lease can be produced for each bedroom, not shorter terms when you show it later to lenders when seeking the next property. Buying just a single family house as the first one, there are no bedroom tenants yet and none would be assumed. Thats why a 2 to 4 unit is often better as a first purchase.

Lenders will look at both your 80k salary and any rental income a multi-unit will generate. Generally speaking there is the 50% rule on the Conventional side and about 55% on the FHA side called Debt to Income Ratio. That means that your salary taken in a monthly snapshot, say monthly 80k is 6666 a month. Half of that is 3333 a month to work with for mortgage payment plus all other debt you carry like minimum credit card payments, car payment, any student loan payment. After subtracting all that from the 3333.00 , whats left is what you can spend on a mortgage payment including property tax, home insurance and mortgage insurance. Plus any rents from a multi unit taken at 75% of gross ( this means 25% is assumed to be spent on maintenance etc.). So if buying even a 2 unit there is the rent from the other unit taken at 75% of gross to add to the 3333.00 from you salary.
An example might be a purchase for 200,000 plus 50,000 to pay for the renovation is 250,000 to a lender. A 3.50% down payment off that is 8750.00 leaving a base mortgage size of 241,250 then add the regular FHA Mortgage Insurance Premium or MIP that is 1.75% of your loan amount, or 4221 ( an up front fee FHA charges to fund their programs) which is usually added to the loan so you dont pay it in cash, then total loan is 241,250 + 4221 = 245,471. Assume a 30 year rate at 7.125% say and you have a monthly principal & interest payment of 1653.78. Add to that the FHA Monthly mortgage insurance fee ( yes they charge twice) of .0050 X base loan 241,250 = 1206.25/12 months = 100.52 a month; add then monthly property tax escrow and monthly home insurance escrow to get to a final total payment. As above you had 3333.00 to work with, minus any current debts like car loans, credit cards, student loans. This is how lenders approve you basically. Rates can change daily and 7.125 was just an example. So now you can run numbers for yourself and see how much house you can reasonably be expected to be approved for by working backwards as I have done.
I hope this is helpful and not too much too dump on you. Feel free to ask more questions. Done may 203ks and HomeStyles so kind of a mortgage/reno nerd.

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