First Investment Multi-unit with no $ and bad credit

5 Replies

Hi everyone,

I'm new to BP and this is my first post, so thank you to anyone who takes the time to read and help me out. 

My situation: 

Credit score in mid 500s.

No $ saved for down payment. 

My last job assignment ended a few months back and I've been having trouble finding another job since I'm pregnant. So, I've been using my savings to survive (which was originally meant for starting my first investment). I'm 25, live in suburbs about 20 minutes from Los Angeles, and unemployed. 

My goal:

I'd like to purchase a multi family Property in which I can live in for the first 2-3 years. I would be the landlord/ property manager living on site. At that point, ideally I would like to invest in a second multiunit but that's only an idea. I'd like to make at least 30k yearly profit/income to start. Not counting property taxes and all that.

Questions: 

I've heard of FHA loans but not sure if I qualify or how they work. Any insight?

Even if I utilize seller financing, how do I pay for the down payment? Would I need a bank loan in addition to the FHA loan?

How will I find a property with a vacancy for me? 

Is it best to do this on my own or go through a realtor at century 21 or remax for example? What would be the main differences? 

My baby is due in 3 months and ideally I'd like to be moved into our new apartment bldg by then but realistically I'd like all this to happen within 1 year. I'm just afraid of making a wrong move that will ultimately affect my little one. My dream is to start establishing a passive income now and be set by the time I'm 30. Any and all advice is greatly appreciated! 

Hello Jessica,

Congratulations on your baby and on your decision to get into real estate. Your best bet would be to get an FHA loan. You would need 3.5% for a downpayment though so work on getting that saved up. Your credit score needs to come up a little too so make it a priority to pay down your credit cards and work on fixing blemishes on your credit report.

You will also need a stable income to get preapproved for a loan. Do you have someone that can cosign with you? If not, once you get a new job, you will have to keep it for a couple months before you can be preapproved. Once you get preapproval from a bank, then you would want to pick a realtor to help you find a property that you can buy with the amount you are prequalified for. There are lots of realtors on here or you can google a realtor as well. I would not recommend doing on your own. It is free for a buyer to use an agent so you might as well use one.

Best of luck investing!

Hi Jessica, 

Congrats on your pregnancy! Your best option is to get an FHA loan which requires as little as 3.5% for an SFR or duplex. Although FHA is a government-assisted program for homebuyers, banks are still required to insure that the homebuyer meets certain requirements. A large chunk of those requirements is ensuring the purchaser has the ability to repay. This is based on a mixture of information:

1. Credit Score- does the borrower have a history of repayment? How much debt does the borrower have? 

2. Does the borrower have stable income (usually 6 months of current employment history and 3 years of tax returns) and how much is the monthly/annual income? Can the borrower's monthly income appropriately service the real estate debt AND their current (including student loans, credit cards, car, etc) AND their cost of living?

3. Does the borrower have the cash/liquid assets to meet the required down payment on the property and cover the bank's closing costs which includes appraisal, tax search, flood search, underwriting, etc (this varies from bank to bank).

4. If you're looking to purchase a 2+ unit, then average rents in the area might be considered as income for the multi-unit property which can make it easier to meet the income requirement to service the mortgage. Keep in mind, not all financial institutions will consider the average rents for the area as income towards the property.

If you're using your investment cash to live and do not currently have stable income, I suggest to wait until your cash reserves are replenished and you have at least 6 months of stable income (w-2 or 1099) to begin working with a lender.

Best of luck to you and congrats again! 

Hi Krista,

I don't want to discourage you but I have a little different perspective on your situation. Look back at yourself from the perspective of the investor you're going to ask to go into a joint venture with on your first investment property.

what does that person want to see? They will want to see that you have mastered the numbers to evaluate investment properties. they will want to see that you have a lot of practice applying those numbers to actual properties. They will want to see that you have a basic, stable life situation for you and your child- probably meaning a stable job, a stable place to live, and a stable car that gets you to and from. They want to see that you have your priorities in order, meaning your child and family comes first before everything else and that if real estate investment is your calling, you're passionate about it- probably that the few hours of free time you (like any new parent) have each day, are spent developing excellence and experience and education around real estate investing, not in tv or the other trivial things that so many of us pursue each day.

So I would suggest you get stable income, then begin pursuing your real estate license, then educate yourself on investing and get all the experience you can. If you put yourself in the field and make yourself into an expert, someday you will find a great property, have confidence to put it under contract, and already know which investors you will present it to as a possible joint venture project. If you've done your homework in life and in investing, they will say yes to going into it with you.

Jim Watts

Originally posted by @Kiersten Vance :

Hello Jessica,

Congratulations on your baby and on your decision to get into real estate. Your best bet would be to get an FHA loan. You would need 3.5% for a downpayment though so work on getting that saved up. Your credit score needs to come up a little too so make it a priority to pay down your credit cards and work on fixing blemishes on your credit report.

You will also need a stable income to get preapproved for a loan. Do you have someone that can cosign with you? If not, once you get a new job, you will have to keep it for a couple months before you can be preapproved. Once you get preapproval from a bank, then you would want to pick a realtor to help you find a property that you can buy with the amount you are prequalified for. There are lots of realtors on here or you can google a realtor as well. I would not recommend doing on your own. It is free for a buyer to use an agent so you might as well use one.

Best of luck investing!

 Kiersten,

Thanks so much for your feed back. There is so much to learn, it can get overwhelming. I think I'll definitely use a realtor at least for my first property to learn the ropes. Any thoughts on seller financing? 

Good idea to use a realtor. Seller financing right now is probably unlikely. You can definitely ask but if you have no stable job and no downpayment they will not look at that favorably. Work on getting your credit up, get a stable job and work hard at it for at least 6 months and then you can get a pre-approval from a bank. You might want to check out rent to own properties (most will be SFR not MFR's). Best of luck!