First Investment Property

8 Replies

Hi Everyone - I am a recent college graduate working in finance.  Great first job, but it's boring and I'm living paycheck to paycheck.  I've been reading a lot on personal finance and everything has pointed me towards real estate investing.

I'd like to start out by purchasing a single-family residence and renting it out to tenants.  I have ~ $30K with no debt and an investing partner my age with about the same amount of cash on hand and no debt (both of us have excellent credit).

With that being said, we're wondering what you guys think the best way to structure our first purchase would be (i.e. LOC, HELOC, etc.). Even after all the research, we're still unsure of the best ways to finance our first property.

Thank you guys so much - these forums are incredibly helpful!

Kyle

Not sure how far you can get on 30k in LA these days. I'd probably start small. Live-in flip or house-hack your first property are probably options within your budget. After that, you probably will have to wait another year for the next one. Not the most exciting way to get started but it's slow and safe and you'll learn what to do along the way. 

@Kyle Burkhardt

Congrats on getting started. So if I'm reading correctly you both have 60k together? Have you thought of a multi family property? Maybe you and your friend can buy a multi, live in 1 unit, and rent out the other. After a year do it again or have saved up enough to go on your own and buy something with more of a down payment. If you move in you can take advantage of homeowner loans versus investor loans which require usually about 25%. If you house-hack with your partner you can use an FHA loan and may be able to get something. I'm not familiar with the LA market, but a 17,500 Down payment using FHA can get you a 500k multifamily. Just a suggestion.

Thank you both very much for your responses. It seems like you both have the same idea of house-hacking, which I didn't really think of being an option because the LA market is so expensive. Is it possible to get an FHA loan on a duplex in which I live in one of the units? Also, is there any downside to using an FHA loan on my first property? Will this get me into trouble moving forward?

Hi @Kyle Burkhardt . There aren't really any major downsides to using FHA. The worst part I'd say is that you'll have PMI since you'd be putting down less than 20%, but this will be somewhat offset by FHA's favorable interest rates. Also, you will be required to live in one of the units for at least a year. Once your year is up you could potentially refinance out of the FHA into a conventional, then use FHA again on another property (you can only have one FHA mortgage at a time). Or, don't bother refinancing if you can afford 15% or 20% down on your next property and just go conventional. You can use FHA for houses between one and four units, 3.5% down. I used FHA on my first duplex a year and a half ago, and I'm now purchasing another house I will owner occupy using a conventional mortgage, 15% down.

Hey Kyle - 

I went in on a duplex with a college buddy in Minneapolis and it's been a great learning experience. If you find a property with solid cash flow you won't need to worry about the PMI because you won't hold the property for 30 years. Starting out house hacking, in my opinion, is the best way to gain experience, learn the ins and outs of property management, and kick start your real estate career. Just have to make the jump!

Originally posted by @Kyle Burkhardt :

Hi Everyone - I am a recent college graduate working in finance.  Great first job, but it's boring and I'm living paycheck to paycheck.  I've been reading a lot on personal finance and everything has pointed me towards real estate investing.

I'd like to start out by purchasing a single-family residence and renting it out to tenants.  I have ~ $30K with no debt and an investing partner my age with about the same amount of cash on hand and no debt (both of us have excellent credit).

With that being said, we're wondering what you guys think the best way to structure our first purchase would be (i.e. LOC, HELOC, etc.). Even after all the research, we're still unsure of the best ways to finance our first property.

Thank you guys so much - these forums are incredibly helpful!

Kyle

You mentioned HELOC as a possible way to structure your first purchase. Do you own a primary residence that you can take a HELOC on?

If you both have excellent credit you may be able to find a lender that will overlook the PMI on an FHA loan. We were able to forego the PMI in our townhouse due to my fiance's excellent credit, and that was through New American Funding.

Updated 8 months ago

I forgot to mention that just like you, Kyle, we used the FHA with no PMI on a townhouse that is essentially an up-down duplex. It has a walkout basement that we are renting out. Colorado's market is crazy too. The rent we'll get doesn't cover anywhere near the entire mortgage, but it made it so that compared to our previous monthly apartment rent, we are paying less out of pocket and upgraded to the house where we can build equity.

@Kyle Burkhardt

I 2nd everything @Mark Smith said. I would just add that you and your partner have to define everything in writing to each-other. For instance what if one of you wants to move out and get married, do you sell right away or find another roommate until you have the property in position as a rental or are able to refinance out into a conventional? Just make sure you and your partner have an understanding, laid out in writing and it can work out great.

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