I was preapproved. What kind of property should I buy?

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I was preapproved. What kind of property should I buy?

Raeshelle C.
anywhere, MA · Member since 2015 · 116 posts · 61 votes

I was pre-approved for $130K with Freddie Mac, 1% down with a requirement to save reserves and have the seller pay closing costs. I'm a first-time home buyer and I work full-time. The apartment I live in now, I'm paying $500/mo plus utilities (splitting 1500/mo with my siblings) but I can afford to pay more than that per month obviously. The apartment I'm living in now is very small and broken down though, and it is not a stable living situation. I want to move out and be independent. I also want to own houses in the future to be financially independent. Knowing my situation, what kind of property would you recommend I buy? I do have a buyers agent but she doesn't have an investors mind and so that is why I am asking here. I want to make a decision that will benefit me financially in the future and help me on the road to owning properties in the future. (Side note: I live in a tenant-friendly state.)

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Natalie KolodijBusiness Member
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Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
9y

If run down apartments where you live are $1,500 are there houses for $130,000? That seems pretty drastic in terms of costs. 

What kind of plans do you have longer term?

What property would fit your needs? 

Make sure you have a back up plan/ exit strategy?

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  • Natalie KolodijBusiness Member
    Moderator
    Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
    9y

    If run down apartments where you live are $1,500 are there houses for $130,000? That seems pretty drastic in terms of costs. 

    What kind of plans do you have longer term?

    What property would fit your needs? 

    Make sure you have a back up plan/ exit strategy?

    Podcast Guest on Show Pay Less Tax to the IRS This Year With THESE Real Estate Tax Strategies
    Kolodij Tax & Consulting
    WebsiteView Page
    1Reply
  • Nuhan Demirkan
    Rental Property Investor · La Plata, MD · Member since 2011 · 216 posts · 117 votes
    9y

    Hi Raeshelle, since you're going to live in this property I would suggest you consider your personal living requirements first. Outside of that buy in an area where people would want to live. Maybe buy with renting a room to a friend in mind to help with the monthly costs. That would also give you an idea about being a landlord to see if that is what you want to do.

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  • Raeshelle C.
    OP
    anywhere, MA · Member since 2015 · 116 posts · 61 votes
    9y
    Originally posted by @Natalie Kolodij:

    If run down apartments where you live are $1,500 are there houses for $130,000? That seems pretty drastic in terms of costs. 

    What kind of plans do you have longer term?

    What property would fit your needs? 

    Make sure you have a back up plan/ exit strategy?

     The apartment i live in is 1k/mo and the ceiling leaks. The extra 500 are utilities. 

    I want to rent out houses to people for cash flow and eventual wealth. But I also need a place for myself. So I'm trying to figure out what I can get that is affordable. I dont want to pay more than $900/mo for mortgage AND utilities for the house that I do choose. 

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  • Raeshelle C.
    OP
    anywhere, MA · Member since 2015 · 116 posts · 61 votes
    9y
    Originally posted by @Nuhan Demirkan:

    Hi Raeshelle, since you're going to live in this property I would suggest you consider your personal living requirements first. Outside of that buy in an area where people would want to live. Maybe buy with renting a room to a friend in mind to help with the monthly costs. That would also give you an idea about being a landlord to see if that is what you want to do.

     Thanks for your response Nuhan!

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  • Natalie KolodijBusiness Member
    Moderator
    Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
    9y

    @Raeshelle C. how are duplexes in your market? That may be a viable option depending on what they tend to cost in your market. You can sometimes get the lender to include 75% of the rents it generates in your income for approval. 

    So a duplex may cost a little more, but you may be able to be approved for a little more too.

    Podcast Guest on Show Pay Less Tax to the IRS This Year With THESE Real Estate Tax Strategies
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  • Matt Lefebvre
    Real Estate Broker · Manchester, NH · Member since 2014 · 630 posts · 420 votes
    9y

    Though I'm not entirely familiar with where you're looking, $130K isn't a huge budget to purchase an investment property.  One of your potential options could be a live-in flip, since you can usually get those for a lower price (though I don't know what kind of requirements a Freddie Mac 1% down have for condition of a property).  Work on that for a year or two, taking advantage of the low downpayment option you have, and then sell it for a profit.  I do think you'll struggle with purchasing a multifamily as its tough to find something for that pricepoint. 

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  • Raeshelle C.
    OP
    anywhere, MA · Member since 2015 · 116 posts · 61 votes
    9y
    Originally posted by @Matt Lefebvre:

    Though I'm not entirely familiar with where you're looking, $130K isn't a huge budget to purchase an investment property.  One of your potential options could be a live-in flip, since you can usually get those for a lower price (though I don't know what kind of requirements a Freddie Mac 1% down have for condition of a property).  Work on that for a year or two, taking advantage of the low downpayment option you have, and then sell it for a profit.  I do think you'll struggle with purchasing a multifamily as its tough to find something for that pricepoint. 

     I live in MA. I will look into this. 

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  • Matt Lefebvre
    Real Estate Broker · Manchester, NH · Member since 2014 · 630 posts · 420 votes
    9y

    Have you looked around online to see what the pricepoint for a two, three, or four family is in the part of MA you're looking in?  And is that affordable?

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  • Raeshelle C.
    OP
    anywhere, MA · Member since 2015 · 116 posts · 61 votes
    9y
    Originally posted by @Matt Lefebvre:

    Have you looked around online to see what the pricepoint for a two, three, or four family is in the part of MA you're looking in?  And is that affordable?

     I have. The multifamilies for that price are usually fixer uppers, so I'd have to pay to fix them up. I will keep looking though. There are cheaper houses in New Bedford that I can look at. Also, I'm not sure that this loan would accept a multifamily. I'll have to find out about that too.

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  • Jayson Lesyk
    Moreland Hills, OH · Member since 2016 · 50 posts · 47 votes
    9y

    @Raeshelle C. I am in almost exactly the same situation as yourself! I have been approved for 130k through an FHA loan with around 4-5% down. The huge difference is I live in Cleveland, with a market where 130k buys something pretty nice. It looks like you're near boston, but possibly far enough out of the city that 130 is enough for a starter multi-family in a C-/+ neighborhood? Personally, in my situation the numbers look best for me investing on my side of town where I have lived and know the townships like the back of my hand. Triplexes with at least 2 bedrooms per unit seem to give me the best cashflow time and time again when I run the numbers. However, I'm sure a fourplex would be even better if I could find the right one.

    Being that you are in a tenant-friendly state, do you think you are ready to take on living side-by-side with tenants? I have never done it, but, I am optimistic that in my state and the cities I am looking to invest, that I will be able to self manage at least 5 properties, or 10-15 doors successfully, whichever comes first. Just a few thoughts. It seems like you have definitely put your own time and thought into it. We should keep each other informed on our progress! 

    * Check with your lender; but, I'm fairly sure your FHA approval is good for multifamilies up to 4 units.

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  • Jacob Pereira
    Real Estate Agent · Austin, TX · Member since 2014 · 636 posts · 486 votes
    9y

    It sounds to me like you're eligible for some kind of special first-time homebuyer's mortgage. I actually thought Freddie/Fannie weren't allowed to give out loans at such a low down payment. That implies to me that you may be eligible for other low-income first-time homebuyer's grants. See what your state and city offer; you might be surprised how much you could end up with.

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  • Devin Deswert
    Investor · Salt Lake City, UT · Member since 2016 · 78 posts · 38 votes
    9y
    Hi, I agree with Nuhan. Buy what you can afford to live in where you want to live. To me you having a stable living situation trumps finding a cash flowing property. Also I don't at all know your market but I do know the 2 states I've invested in that 1% down on a place would only loose me money. But your market might be different, have you ran any numbers?
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  • Raeshelle C.
    OP
    anywhere, MA · Member since 2015 · 116 posts · 61 votes
    9y
    Originally posted by @Devin Deswert:

    Hi,

    I agree with Nuhan. Buy what you can afford to live in where you want to live. To me you having a stable living situation trumps finding a cash flowing property. Also I don't at all know your market but I do know the 2 states I've invested in that 1% down on a place would only loose me money. But your market might be different, have you ran any numbers?

    I can live somewhere and cash flow at the same time.  And I will. You dont become wealthy by not making a move.

    As far as your question, you're going to have to be more specific. I have come upon properties and ran numbers to find out what my potential cash flow could be if that's what you're asking. How would 1% down lose you money?

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  • Devin Deswert
    Investor · Salt Lake City, UT · Member since 2016 · 78 posts · 38 votes
    9y
    Hey, I was speaking to my specific market. That market is the west coast. In that case 1% isn't going to get me far. But if it does in your market great. If not then you might have to look at the solution differently. My first home was a investment but it was not a cash cow. It was a duplex and it suited my needs great but I didn't have the cash down to make it do much more then break even. But because I found a place I was happy to live in and make extra payment's every month while it was still owner occupied the refi 3 years after purchase price was easy and now it's the shinning star in my portfolio. So your original question wasn't on a specific deal it was what you should buy. The requirements being able to be independent and stay under 900 dollars a month with as little as 1% down. My answer was find a place where you want to live. Then ask yourself what you would pay to live there, market research if those rents are right. Figure out what your numbers look like, if they look good now then odds are they will look better the more you pay down.
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  • Gilbert Dominguez
    Investor · Detroit, MI · Member since 2016 · 211 posts · 144 votes
    9y

    You mentioned you got approved for a $130k loan with 1% down but don't forget to add closing costs, possible deferred maintenance costs, insurance, and property taxes plus any other possible closing cost that need to be provided for out of pocket.

    Having said that work hard to maintain your current credit standing and try to save up a little more money just in case but I would look for a possible inexpensive multi family so you can have a place for yourself and generate rental income to help out with the mortgage and possibly provide you with a positive cash flow if possible. Don't become over come with fear but also do not buy the worst possible property you can get yourself into. If you feel confident enough to try being a land lord that might provide you will something of a stepping stone for your next step in building up real estate assets over they years to come.

    Whatever you do try to make sure you will end up financially in a better situation that you are now. Although its great to be totally on your own living with other who share expense with you provides you with an opportunity to save money. Like they say, " a penny saved is a penny earned".

    Don't be afraid to jump into ownership but at the same time do not overwhelm yourself with debt obligations either.

    There was one suggestion you get your own place and rent out rooms, that may be a viable option for you until you gain confidence to try land lording on a multi family.

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  • Thomas Barksdale
    Haverhill, MA · Member since 2016 · 42 posts · 4 votes
    9y
    Great interest rate wish luck happy investing.
    0Reply
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