Getting Ready to Buy My First Property

12 Replies

I've been renting for my first 5 years out of college and investing in my landlords' futures. I'm an engineer in the commercial construction industry moving from Boston to CT in 6 weeks and want to start investing. 

My current plan is to invest in my personal residence by buying a rehab, living in it during construction for about 2 years, with a large amount of the work done myself, then selling and repeating. I plan to go with traditional financing and an agent for the sake of simplicity on my first purchase. I am looking for a deal that is 70% of ARV minus rehab costs and I know that calculating ARV and rehab costs accurately are very important.

Although I feel like I don't even know enough to ask the right questions yet, I want to start asking questions early and avoid learning things the hard way. Are there other investment options/strategies I should consider? What are points of failure that I might overlook?

One of the first things you might miss with your strategy might be not accurately anticipating the rehab costs.  I recommend poking around on the site for a while, or better yet, check out J Scott's book "The Book on Estimating Rehab Costs."  I just finished it this weekend and  highly recommend it.  It has a lot of good info in terms of how much you'll need to budget for different aspects when it comes to repairing a house.  Your costs will be less than some of the ones he quotes, but if you at least tally up all the work and go in assuming that some parts will have to be performed by another contractor then at least you won't be surprised.  Your idea is a great one, just make sure you're realistic on what it will take to fix whatever you buy!  

No bank will make a loan to you on a home that needs this amount of renovations.  IF the home inspector marks that the home has many repairs needed then those will have to be made prior to your purchase.  If you purchase from a bank the bank will not make the repairs as it is mostly as-is.  

That's a great start. Living in a construction zone can be a huge headache but after two years all the gain (if any) is tax free. The problem is that in two years the market can drastically change so it is a speculation play but if it goes in your favor it can be very lucrative. Good luck

Originally posted by @Curt Davis:

No bank will make a loan to you on a home that needs this amount of renovations.  IF the home inspector marks that the home has many repairs needed then those will have to be made prior to your purchase.  If you purchase from a bank the bank will not make the repairs as it is mostly as-is.  

Sounds like this could stop me in my tracks. Are you saying I will have to either buy REO property or secure seller financing?

Thanks for the replies guys!

It honestly depends on the houses condition. We bought a foreclosure with a VA loan (one of the tightest on condition). The house was in livable but cosmetically ugly condition (no light fixtures, closets, kitchen cabinets destroyed with paint, etc). We personally fix the houses up and than use them as buy and hold rentals. We may eventually do flip but having another tenant pay down you mortgage is amazing.

I think you're being a little to aggressive on purchasing a home that you're willing to live in that's in need of some seriously extensive work. I'm all about sacrificing now for the future but I know that would be a bit much for me.

To buy a property at 70% ARV minus repairs would probably mean that you don't have working plumbing & electrical and you may even be living with mold or some other health hazards. I just really wouldn't recommend it!

Instead, I'd say to purchase a multi-family property with 2-4 units in need of some repairs. Live in the property until the work is complete then repeat the process but DON'T SELL THE PROPERTY. Keep it as a rental.  

Originally posted by @Raymond B.:

Harrison,

Click on this link concerning the FHA 203K program.

It could be another option for you.

Raymond

I have heard of the FHA 203K, but as I understand, it requires you to use a general contractor to complete the repairs. I would like to do most of the work myself.

Originally posted by @Cameron Norfleet:

I think you're being a little to aggressive on purchasing a home that you're willing to live in that's in need of some seriously extensive work. I'm all about sacrificing now for the future but I know that would be a bit much for me.

To buy a property at 70% ARV minus repairs would probably mean that you don't have working plumbing & electrical and you may even be living with mold or some other health hazards. I just really wouldn't recommend it!

Instead, I'd say to purchase a multi-family property with 2-4 units in need of some repairs. Live in the property until the work is complete then repeat the process but DON'T SELL THE PROPERTY. Keep it as a rental.  

I really like that idea, but my down payment and pre-approvals so far are pretty meager. (About $12,000 and $175-200k respectively.) It doesn't appear that I can afford a multi-family in the Danbury area.

I think the move here is to buy an extremely ugly, but functioning house like Elizabeth Colegrove mentioned she did.  If you can buy something super 1970s, horrible brown carpet, dark wood paneling, drop ceilings, dated fixtures and appliances etc. that is functional plumbing, electric, septic, etc. that might just be the ticket.

I've financed a few of these without problem.

dupe

Originally posted by @John D.:

I think the move here is to buy an extremely ugly, but functioning house like Elizabeth Colegrove mentioned she did.  If you can buy something super 1970s, horrible brown carpet, dark wood paneling, drop ceilings, dated fixtures and appliances etc. that is functional plumbing, electric, septic, etc. that might just be the ticket.

I've financed a few of these without problem.

 This sounds like a good way to go. I'll look for something along these lines. 

As for paying for paying for the repairs, is a separate line of credit my best bet?

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