I am thinking when I buy my first house, I will buy at least a duplex but maybe bigger then that? Would you do the same if you had no actual real estate experience and you just had knowledge? Or would you recommend buying a home for my self like a single family home and then a couple or few months down the road, buying at least a duplex or bigger? I am going towards the first option I mentioned but wanted to get others opinions as well.
If you say go with the first option, what would you recommend as far as financing the deal? Get a partner, an investor, or go to bank?
Originally posted by @Jason D. :
Living in your first investment is a great way to start, I wish I had done it myself. Financing depends on what you are looking for. An FHA loan is great if you don't have a lot of cash and the property is in good shape because you can get as low as 3% down payment options. The downfall is that your payment may be higher because of the low down, so cash flow will suffer a bit. You could also do conventional financing starting at 5% down. Again cash flow will suffer due to low down and PMI. Traditional 20% down would be ideal, if you have the cash. No PMI and maximum cash flow. In all scenarios, traditional banks will likely give you the best terms.
Got ya. Yeah I will have around $20,000 to put down and I have seen some duplexes in my area for 100k. My money would go a lot more if I do an FHA loan it seems like or conventional financing but I just wonder how much interest I would pay if I did one of those options?
@Mike Bereck Search "House Hack" in the forums. You'll find tons of great advice and stories about how people have leveraged low down payments (3.5%) to purchase a duplex as both a primary and rental property. In a nut shell, live on one side while renting out the other. From here, you have multiple options from using the rental side to hopefully cover the entire mortgage, to fixing up either side and forcing appreciation, to leveraging this property to buy your next, or 1031ing this property into a larger project. Good luck!
@Mike Dorneman I will do that. Yea that is a good idea. Fix up one side and then rent it out for more and then do the same with the other side. Now the low down payments are you are talking about, is that a one time thing you can only do once or can you do it over and over again?
@Mike Bereck This is an FHA loan and they want you to live in the property for 1 year. After that, you can rinse and repeat. At that point, you'll want to look into a commercial loan for refinancing the original property. Also the time in which you'll want to meet with a real estate attorney and CPA. Protect your personal assests and make sure you don't turn those profits over to the Tax Man.
You can do it over and over but must live in the property for at least one year before you reuse it.
Also keep in mind that you will have closing costs to buy a home which will run you 4-5k.
So if you have a 20k, more realistically you have 15k for a down payment.
@Mike Dorneman What do they look for whne approving people for these loans?
@Caleb Heimsoth Right.
@Mike Bereck , keep reading the forums and listening to the podcasts. You might be a great candidate for "house hacking" and making it your first investment property. (your posts reveal that you have no knowledge of applying for or getting approved for a mortgage. Go ahead and start a pre-approval process with a lender(s); see what's possible with your income).
In house hacking, you'll read that the cheapest mortgages are the "owner occupied" with as little as 3.5% down payment. By agreeing to live in it for a year, you don't need 20% to 25% down payment, as you do on a "non-owner-occupied" rental. Research what a duplex/tri/quad would cost, what it would rent for. Can you qualify for such a purchase, and will the other 1, 2 or 3 tenants bring in enough rent to make it a good investment. (The point is to begin making passive income; but a lot of emphases is on "living for free" in your unit, while the other tenants pay all costs). After a year, you could buy another hack property and rent all units in your first. Then you're a landlord with two investment properties.
Read also here about BRRRR fix/hold strategy....it's a fast way to grow wealth, if you're up to rehabbing properties (either yourself, or overseeing contractors doing the work).
Will do. I’ll look more into that as it would be a good idea as long as the numbers work. I doubt all lenders would give out loans for 3.5 down? As I understand the FHA loan is like a government loan?
@Mike Bedeck The sense I get from your post is that you want to create a a rental portfolio of more than one property. I would definitely look in to the low down payment loan products FHA (3.5% down, The FHA loan is good for owner occupant up to 4 units.), USDA Rural loans (can be 0%), available in certain areas. Save your funds for the next one where you may not qualify for some of the low down payment owner occupied loan products; and will have to put a larger chunk down.
And to answer your 2nd question, I would start with the bank and try and try and get approved on your own and only use a partner/investor when necessary, save them if needed for down the road.
Got it. So do they approve people for FHA loans earlier then a typical bank?
@Mike Bedeck Here's a link to HUD approved lenders (mortgage companies, banks, credit unions) You can use the search criteria to pull up which banks have been qualified to offer FHA loans in your area. Most banks and lenders will be happy to speak with you. https://www.hud.gov/program_offices/housing/sfh/le...
Great! Thanks for the link!
@Mike Bereck Hey Mike, I bought my first house as a house hack similar to what you mentioned but mine is a 4-unit. I had little experience with real estate, mostly knowledge, but I decided to go for it anyways. It is a long ride to get yourself to a comfortable situation but it has so far been worth it!
PM if you have any questions, I went with FHA! (5% down)
Steve I set you a pm!
If you live next door from your tenant you will spend the rest of your life taking care of their needs. Most landlords do not even give out their home address. You want to have a life right?
@Mike Bereck , begin talking to lender(s).
A typical mortgage company can offer a variety of mortgages. Depending on your property and your income/credit worthiness together, you can find:
a) FHA loan (a conforming loan that is insured by the federal government; this insurance protects the lender in case you default.) Because of the federal guarantee, lenders allow lower down payments (as low as 3.5% down.) Monthly mortgage payment will increase because you have to pay for this "insurance" (like PMI).
b) Veterans can qualify for a VA loan w/ zero down payment and excellent terms; again guaranteed by the federal government (VA department).
c) conventional conforming loan (not insured by FHA). Good terms because your mortgage company can "sell" your loan on the secondary market (Fannie Mae and Freddie Mac). Requires more down payment than FHA. Might have PMI added to payments if less than 20% down payment.
d) portfolio loan. Less favorable terms, since this "non conforming" loan won't meet Fannie/Freddie standards, and your lender or credit union will keep it in their local "portfolio" for the duration of the loan. Likeley will be an adjustable rate mortgage (ARM)
e) if you don't qualify for any of these, you look to hard money lenders or private lenders; terms will be less favorable, but the lender may be more flexible.
Beginning a loan application with a lender(s) will allow your loan officer to try and fit the best program for you. Do some comparison shopping; not all terms are the same from different sources.
Steve try to send me a pm. The app closes when I try to send you one.
Sam it would only be for a year or less if I refinance it if I can?
@Steve DellaPelle I sent you a direct message.
@Steve K. Thanks for the post. I think that I will have to go with a FHA loan due to the low down payment and the less strict requirements. I will see about the conventional loans as well but doubt I would be able to get one at this time.
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