Best Steps Moving Forward? House Hack Advice for a New Investor.

Starting Out
9yFollow

Best Steps Moving Forward? House Hack Advice for a New Investor.

Account Closed
Morris, MN · Member since 2017 · 8 posts · 2 votes

Hello BiggerPockets Community,

My name is Phil and I'm an aspiring real estate investor currently living in greater Minnesota. I've been thinking about, researching, and trying to plan for my RE investing future, but I'm feeling stuck at the moment (more on that below). I am hoping your advice/insights/new perspectives will inspire me to take action. I know this journey is personal and that I'll need to make my own decisions and take my own risks, but I'd love to hear your suggestions on the best plan of action moving forward. 

A bit more about my current financial situation:

Current Income-

  • $6,800 monthly gross wages (my wife and I both work full-time in higher education)

Current Debt-

  • $99,945 mortgage balance on single family home 
    • Monthly payment of $858 (includes P&I, insurance, taxes, and PMI)

Misc. Financials-

  • Credit Score: 750-800
  • Non-retirement Savings: $30,000

Real Estate Holdings-

  • Aforementioned SFH purchased for $117,000 (4.25% interest rate).
    • Recently sold comps ~$135,00-$150,000 (we put sweat equity into the house- new paint, DIY hardwood refinishing, replaced carpet)
    • House is 3 bedroom, 1.5 bath rambler with double attached garage, patio, and attached 3 season room. Basement is unfinished.
    • Rent is low in our area, so keeping the house as a rental doesn't seem viable. We will plan to sell. 

Experience:

  • My father is a remodeling contractor, home inspector, property manager, and county rental inspector. I've worked with him on many projects (including a foreclosure rehab) and am very familiar with property management. 

Short-term Goals-

  • Purchase and owner-occupy a multifamily unit (ideally a 4-plex). I will self-manage the other units.
  • Transition to living off one-income and start having children (my wife enjoys being busy and the social aspects of work and wants to continue full-time employment).

Long-term Goals-

  • Grow real-estate portfolio to consist of a handful of multi-family units.
  • Live off of real estate investment cash flow (i.e. achieve financial independence).  

Why Feeling Stuck?

We currently live in rural MN, but want to relocate to a larger city in Minnesota (ideally somewhere in the Twin Cities Metro, but maybe other population centers like Mankato, Duluth, etc.). As such, we've been holding off from selling our house, searching for multifamily units, investigating loan options, etc. until my wife finds a new job and we know where we will be living. In my head, the steps moving forward look something like this:

Find job ---> Move into temporary rental ---> Sell house---> Be pre-qualified for FHA loan--> Find multi-family unit.

Here are a couple of questions: 

  • What should I be doing now in preparation if I don't know the exact location where we will end up? I've been doing a lot of research (books, blog posts, podcasts, etc.), but I'm anxious to take action. 
  • Is it a mistake to wait to apply for a loan until after we make job changes? I assume my wife will have a monthly gross income around $4,000, but it will be a brand new job for her and I won't have any income to show on a loan application. 
  • Am I missing anything?

Thanks in advance for your thoughts and suggestions. 

0Reply
16 views

Most Popular Reply

Jake Hartnett
Real Estate Agent · Saint Paul, MN · Member since 2014 · 95 posts · 82 votes
9y

Save Money - 'Nuff Said

Network - Books and podcasts are great but they only go so far. Network with other investors, agents, lenders, contractors, management companies etc. in markets you are thinking about moving to. There is only so much you can do without getting in front of people. Get on Portal emails from agents to get a feel for deals in different markets.

Define Goals and Criteria - Probably the most important. If you don't know where you are trying to go every road will lead you there. ROI, cash flow per door, rehab you are willing to undertake etc. Know exactly what you are looking for so you will know when to pull the trigger.

Set a deadline and work backwards - I find this very helpful. Ask "what do I need to do by ___ Date to accomplish my previous goal."

1/1/18 close on a 4-plex

"What do I need to do by 10/1/17 to close on a 4-plex by 1/1/18?"

10/1/17 move to target market

"What do I need to do by 9/1/17 ...."

etc

and work backwards to what do I need to do this month, this week, today, right now. Do this once a week at a dedicated planning time and plan your week around your weekly goal while keeping an eye on your other goals. I like Sunday nights for this.

You are way more likely to accomplish your goals (even little ones) if you write them down, and even more likely if you tell someone else who will hold you accountable.

Good luck!

4Reply
See this reply in the discussion

11 Replies

Jump to latestLatest
  • Matt K.
    Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes
    9y

    don't hold me to this and verify with a mortgage broker, but I think you can get some leeway for starting a new job if it's in a similar/same career field and you've been in that field for a long time.

    If you don't care too much where you end up, what about finding a good a market with good MFH options and then a job?

    0Reply
  • Tim SwierczekPro Member
    Lender · White Bear Township, MN · Member since 2016 · 1k+ posts · 1k+ votes
    9y

    @Account Closed mentioned. FHA has specific rules that you must be in your job for 30 days to close.


    Second and I think more important in this case is that the cost of living and homes in the areas you are mentioning are going to require more income to qualify for the home you want and that will best be done after you both have income at the presumably higher level in the city location.

    I think there are more reasons, not the least of which is making a decision to live and purchase a place based on 2 incomes and then be wrong about the actual numbers of 1 or both of the incomes.  I do like your strategy and I think you will best be served by patience in this case.  Good luck PM me if you care to discuss more by phone.

    ~Tim

    0Reply
  • Jake Hartnett
    Real Estate Agent · Saint Paul, MN · Member since 2014 · 95 posts · 82 votes
    9y

    Save Money - 'Nuff Said

    Network - Books and podcasts are great but they only go so far. Network with other investors, agents, lenders, contractors, management companies etc. in markets you are thinking about moving to. There is only so much you can do without getting in front of people. Get on Portal emails from agents to get a feel for deals in different markets.

    Define Goals and Criteria - Probably the most important. If you don't know where you are trying to go every road will lead you there. ROI, cash flow per door, rehab you are willing to undertake etc. Know exactly what you are looking for so you will know when to pull the trigger.

    Set a deadline and work backwards - I find this very helpful. Ask "what do I need to do by ___ Date to accomplish my previous goal."

    1/1/18 close on a 4-plex

    "What do I need to do by 10/1/17 to close on a 4-plex by 1/1/18?"

    10/1/17 move to target market

    "What do I need to do by 9/1/17 ...."

    etc

    and work backwards to what do I need to do this month, this week, today, right now. Do this once a week at a dedicated planning time and plan your week around your weekly goal while keeping an eye on your other goals. I like Sunday nights for this.

    You are way more likely to accomplish your goals (even little ones) if you write them down, and even more likely if you tell someone else who will hold you accountable.

    Good luck!

    4Reply
  • Christopher Marie
    Real Estate Agent · Philadelphia, PA · Member since 2015 · 9 posts · 5 votes
    9y

    Hey I am new to bigger pockets and currently saving up my cash to get a multifamily. My target starting out is a duplex, triplex or quadplex. Does anyone know or have an idea of how long you have to be working at your job to be able to apply and get an FHA loan towards a rental property?

    0Reply
  • Lee Fahy
    Rental Property Investor · Minneapolis, MN · Member since 2016 · 161 posts · 221 votes
    9y
    So if your comps are spot on you could walk away with 30-40k after closing costs. This is a nice little starting point. In the desirable neighborhoods a duplex (say in HWY 100, 394, 35W, hwy 62 box, near Calhoun/Harriett) is going to run 275-400k with taxes in the 4-5k per year range. Those taxes can munch up some profit. I'd consider the outer metro if I was going to owner occupy (but I do love Calhoun in the summer time).
    0Reply
  • Account Closed
    OP
    Morris, MN · Member since 2017 · 8 posts · 2 votes
    9y

    @Tim Swierczek Thanks for your insight on the 30 day job minimum for FHA loans. I appreciate your recommendation of patience at this point. I don't want to put my family in a vulnerable financial position by obtaining a loan before having a full understanding of the financial landscape, costs, etc. of my future location.

    Are there any other specific FHA restrictions I should be aware of that seem to trip up new investors (e.g., is there ever a case when a borrower will be required to have a down payment more than the minimum 3.5%)? I really appreciate your advice!

    0Reply
  • Tim SwierczekPro Member
    Lender · White Bear Township, MN · Member since 2016 · 1k+ posts · 1k+ votes
    9y

    @Phil Rudney it's rare but if the house you are purchasing does not appraise for the purchase price and the price cannot be reduced to match the appraised value, then you would need to pay that difference plus the down payment. I don't think there are many true FHA restrictions that should trip you up. FHA is not an investor loan. It is a loan for owner occupants but it will allow you to live in a 1-4 family home. If you are purchasing a home you can move into at closing you will be fine. This means one of the units in the property must be vacant or the least must be ending when you close so that you are legally able to move in. FHA has something called a self-sustainability test for 3-4 unit properties that your lender will need to cover with you. This basically means the property must cash flow at 75% rents if you were to move out and rent out all 3 or 4 units. I can help you with this when you decide what city you are in because its property specific it's really nothing to be overly concerned with today.

    0Reply
  • Tim SwierczekPro Member
    Lender · White Bear Township, MN · Member since 2016 · 1k+ posts · 1k+ votes
    9y

    @Christopher Marie depends on if you are in a new field or if you recently got a new degree in the field that your new job is in. If it's the same field or you have a degree 1 month of pay stubs, with pay cycles this is more than 30 days of work. Also, FHA has an obscure guideline to prevent job hoppers from getting a loan. I don't recall the specifics but I think you cannot have more than 3 (maybe 4) jobs in the last 24 months to qualify. The exception is if they are all in the same line of work and all represent an income rise over the previous job. It doesn't come up much so I have to look it up when I find a job hopper, but provided that is not you then don't worry.

    0Reply
  • Christopher Marie
    Real Estate Agent · Philadelphia, PA · Member since 2015 · 9 posts · 5 votes
    9y

    @Tim Swierczek ok cool thank you for the info tim.

    0Reply
  • Matt J.
    Rental Property Investor · Hugo, MN · Member since 2014 · 283 posts · 257 votes
    9y

    Hey Phil, 

    If you're working in higher education in Morris, I'm assuming you're in the University of Minnesota system? If that's the case, I have a couple of ideas. You could look for a multifamily in Morris to live in and rent to college kids, and when you move, you just rent out the unit you were living in. Or, you wait and then you move to Duluth to take jobs at that campus, get a duplex (can be found for very cheap compared to the Twin Cities) and build your portfolio from there. Duluth is a great place to invest, I have one triplex there so far and my goal is to build my portfolio up to 30 units total in the next 5-10 years. Let me know if you have questions on investing in Duluth, would be happy to connect. 

    Matt 

    0Reply
  • Oscar Brooks
    Minneapolis, MN · Member since 2016 · 62 posts · 29 votes
    9y

    @Account Closed when you say 'transition to living off one-income' what does that look like for you? Reading your plan it sounds like you anticipate that transition to be immediate, but I'm thinking until you have a handful of properties and decent rental income you won't have enough to keep you busy full time or enough rental income to allow you to save up for future acquisitions. Any reason why you wouldn't continue to work?

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free