First investment. Bad credit. I want to purchase a duplex next year.

11 Replies

Hello, my name is Eddie Hernandez. I'm from North Miami, Fl. This is my first post. My new found infatuation with real estate investing started, like many, after reading RICH DAD, POOR DAD. I started researching books, websites, etc. I've been lurking through the forums trying to absorb as much as possible for the passed week. So here's my situation/question:
I'm very interested in buying a multi family residence (duplex) next year. I have poor credit due to being financially illiterate for a long time. I'm getting organized, knocking bills out and I've started a separate savings for my investment venture.
I'm not too interested in living on the premises. I would preferably rent the units out.
What certain things I should have in place when I have enough to invest? Credit wise? How much is a good amount of $ to have for a 1st purchase (taking into acct, extra unforeseen expenses).
Any advice will be greatly appreciated.

Man don't worry about credit!   All the deals I've done have been owner financed with little or no money down.  If the seller needs to sell, they will go for it.  Just assure them that if you don't pay, they can take back the property and your payments are non-refundable.  They also might like fact the you lighten their tax burden by a series of payments over years rather than one lump sum this year that might put them into a higher tax bracket that Uncle Sam loves! (example $200,000 at even 25% tax bracket is $50,000 they have to pay to IRS. And who likes that when you're not used to it?).  Start looking around and asking. You don't get if you don't ask.  Best of success to you!!

Are you going to be living in that duplex? If so, you can potentially buy it with a FHA loan. That lets you have a low down payment (3.5% I think, though that may have recently changed to 5%). And you can get away with a much lower credit score.

If you're buying it as investor (which you say your prefer), plan on 20% down and a minimum score of 720. Maybe you can get down to 15% down (which will add PMI to your costs) and a score around 680.

Do read in the rental property forum and get an idea of what you're really getting into.  Guru books, like the one you've read, give a very different picture than reality.

Number one dose of reality: Rent - PITI IS NOT cash flow. Not even close. A better estimate is (rent/2) - the P&I part of your payment. Banks use the formula (75%*rent) - PITI, which works if you're managing the property yourself, but doesn't really include the cost of hiring a property manager.

So, the number three task (number 1 and 2 being saving money and fixing your credit) is to figure out if you can even find an acceptable property in an area you want to buy.

If you want to get into investing sooner rather than later then you will need to live at the property for at least a year. This will allow you to get an FHA loan, and only need 3.5% down. (don't forget the closing costs, easily another 3.5% of the property cost) You can buy up to a 4 unit building with FHA, and they will use some of the rent roll on the application to qualify you for the loan. FHA loans are OK to have bad credit. I would also recommend including in your offer for the house the seller to contribute $5000 or more for closing costs (allowable for FHA loans) A co-signer will help a lot, (parent or significant other) This is how we bought our first property, I would recommend finding a 4 unit to buy, deal with living there for a year and save money for your next investment. We found a 4 unit for $192,000, offered $197,000 with $5000 back from the seller for closing costs. We got an FHA loan at 3.75% and it cost about $12,500 cash to close the deal. If we didn't go FHA we would have needed $50,000 or more to close the deal. The Private mortage INsurance is a lot, but it is worth it, it gets you in the game. Good luck

@Eddie Hernandez  do worry about your credit. It's not necessary for investing but will definitely be an asset in the long run.  The questions you are asking should be directed to a lender.  Find a credit union or a well-recommended mortgage broker in your area and start working with them on financing.  Often we do financial things that make sense to us but are not the best choices from a loan underwriting viewpoint.  Working with someone over the next 6-12 months to get yourself ready for conventional lending is a smart move. Then even if you find a great seller financed deal, it's your choice.

Wow...thanks everyone! Great advice and swift, too. 

I'm definitely putting most of what each of you said into play immediately. I have another question/scenario:

Let's say I take advantage of the FHA Loan and buy a single family home I wouldn't mind living in. What options would I have and how long would it take for me or, has it taken you, to invest in a duplex ? Is this even a good strategy? Let me know.

Thank you so much already. 


I agree with Fred.  It is possible to get a property with little or no money down.  I bought the property I am living in today with the owner fianancing the down payment.  It was a win win for both of us, because I got a great property at a wholesale price that was in a million dollar neighborhood, and he got an 8% return on his money in less than a year.

Welcome to biggerpockets!


We bought our first property with a VA loan. We were young with very little credit but since we lived in it first it was much easier. If you look at a FHA you have to put 3.5% down but I believe the credit score is really low. I definitely recommend you shop around broker wise. We had great luck getting started with a personal proerty.

Melissa W.
Awesome! How was ur credit? How did you get in contact with owner directly? Did he offer or did you being it to the table? Was he reluctant or all for it? A lot of questions...bare with me. And thank you for your response.

Elizabeth Colegrove
thank you for your insight. Every word helps so much.

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