Am I on the right track with this strategy (just starting out)?

Question

I have no properties yet - just working a regular job and doing some freelance work on the side. I'd like to start earning some "unearned income" and building wealth. I've read quite a bit and I've watched a ton of videos. I'd like to check and make sure I'm on the right track.

BTW: I make around 80k per year and I live in central Florida.

Here's my strategy:

- I'm currently living with family and reducing spending. Looking to save for a year or two. That should give me about $15k-$25k.

- Buy a multi-family home - I've seen some for as low as $250k, but I'm sure there will be different deals by the time I'm ready to pull the trigger.

- Take out an FHA loan for 3.5%. That's $7,500 on a $250k home which should be much less than my savings. That means I can either have a cash cushion for any renovations or covering some of my mortgage until I get a tenant or get into a property quicker.

- That puts my mortgage at around $1,500. Looking at the comps, I think I can rent it out for $750 - $1,000. That would put me at negative cashflow of -$750. Maybe call it -$1,000 to cover upkeep. Also, even though this is a negative cashflow it's basically what my rent would be. So, I guess I'm paying $1,000 to live in my home to earn equity in my duplex.

- According to an amortization schedule, it'll take about 10 years to get 20% of equity in the property. Ideally, I'd put more towards my principle faster if I have the cash.

- Once I get 20% equity in the property, use another FHA loan to buy and live in another multi-family property then rent out both sides of my first duplex leading that to positive cash flow.

- Repeat..

Am I on the right track? Basically, take out an FHA loan for a multi-family, get 20% equity as fast as I can, and then do it again.

Gregory Schwartz · Answer

@Joshua Lee great plan!

Just wanted to call attention to one thing:

You mentioned, 'I make around $80k per year' and 'Looking to save for a year or two. That should give me about $15k-$25k.'

After taxes, you're bringing in around $5,000 per month. If your living expenses are relatively low, have you considered pushing to hit that $15k goal within 5-7 months instead of 12-24? This means saving $2,000-$3,000 per month and living off of $3,000-$2,000.

If you can maintain that savings rate and keep your cost of living low, you'll be in a great position to jump-start your investment growth much sooner.

Todd Anderson · Answer

Joshua,

It sounds like you are on a good track. What you described is House-hacking. When the investors I work with use this strategy, they normally opt for a 5% down conventional loan. I advise that they find an area where the appreciation is obvious. Then with appreciation and saved cashflow they can reappraise and get rid of the PMI. This allows for much greater cashflow and quicker time to buy the next property.

I also work with investors that value a turnkey proses. Most have also been impressed to see this can be done on new construction properties. this offers less repairs and greater rental possibilities because the property is in the best condition posable.

Feel free to connect for any more information.

Tyler Gibson · Answer

Sounds like you've put a decent amount of thought into your plan and I think it's a pretty good one. You may not need to wait until you have 20% equity on that FHA loan before you do it again. You would have to refinance that property to a conventional loan in order to use FHA again. However, you could potentially use 3 to 5% down conventional loan after a year or two and not need the 20% equity.

Am I on the right track with this strategy (just starting out)?

Am I on the right track with this strategy (just starting out)?

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