Newbie Investor (looking for advice on my situation)

8 Replies

Hello everyone! I am a Realtor and new investor in the Savannah, GA area looking for advice. Here's a brief rundown of my situation:

I have owned/lived in my home for almost 5 years. I have a 3.25% interest rate and my monthly mortgage payment is about $800/month (including taxes, insurance, etc). I have about $40,000 equity in it. I am trying to decide what my best option is in terms of moving forward with investing. My husband and I and my two stepchildren currently live in this home, and we are looking to possibly expand our family and need a bigger place in order to do so. Our first choice is to be able to find a live-in flip that my husband can buy (without me being on the loan) that accommodates the needs of our growing family that we can turn for a profit in a handful of years, and rent out our current home at $1200/month. However, the market here is extremely hot and even foreclosures and worse-for-wear properties are going for top-market prices. We only have about $15,000 cash saved up so far to use for down payment assistance, closing costs, repairs, etc. If we are unable to find a live-in flip option that makes sense for our financial picture, what is our best bet? Do we:

a) Sell our current home and use the proceeds to purchase our next home (that we intend to BRRR or flip) and miss out on the passive income I could get from renting out my current home?

b) My husband purchases a similar or smaller home, we rent out our current place and get that passive income rolling in, and we put our family needs on hold?

c) HELOC in order to purchase another property?

d) Stay put and my husband purchase a cheaper rental property?

Are there other options that I am missing? We want to do what is best for our family but we are also eager to start on our investing journey. Any advice would be most appreciated! 

Originally posted by @Katie Deskins :

Hello everyone! I am a Realtor and new investor in the Savannah, GA area looking for advice. Here's a brief rundown of my situation:

I have owned/lived in my home for almost 5 years. I have a 3.25% interest rate and my monthly mortgage payment is about $800/month (including taxes, insurance, etc). I have about $40,000 equity in it. I am trying to decide what my best option is in terms of moving forward with investing. My husband and I and my two stepchildren currently live in this home, and we are looking to possibly expand our family and need a bigger place in order to do so. Our first choice is to be able to find a live-in flip that my husband can buy (without me being on the loan) that accommodates the needs of our growing family that we can turn for a profit in a handful of years, and rent out our current home at $1200/month. However, the market here is extremely hot and even foreclosures and worse-for-wear properties are going for top-market prices. We only have about $15,000 cash saved up so far to use for down payment assistance, closing costs, repairs, etc. If we are unable to find a live-in flip option that makes sense for our financial picture, what is our best bet? Do we:

a) Sell our current home and use the proceeds to purchase our next home (that we intend to BRRR or flip) and miss out on the passive income I could get from renting out my current home?

b) My husband purchases a similar or smaller home, we rent out our current place and get that passive income rolling in, and we put our family needs on hold?

c) HELOC in order to purchase another property?

d) Stay put and my husband purchase a cheaper rental property?

Are there other options that I am missing? We want to do what is best for our family but we are also eager to start on our investing journey. Any advice would be most appreciated! 

How does the duplex househacking sounds to you? Can you qualify for FHA ? Your savings might be enough for FHA loan. And you can get up to 90% of your equity in the form of HELOC while you live there. Get a HELOC, buy a duplex. Move in there. Rent out your current house and one unit in your new duplex. Be prepared that your current house will not cash flow good enough if you take into consideration HELOC payment and maintenance. But you will eventually have 2 rental properties. Just try not to be cash flow negative. It takes a lot of number analyses. But I know a lot of people who did it.

House hacking is not an option. Our two kids have to remain in the same school district, I live in a rural county outside of Savannah where most multifamily properties are in bad areas. Thanks for your input though!

100% Heloc to access cash! Rates are awesome right now! Try USBAnk they give highest equity!

Your in a great area for airbnb! Check out purchasing a small condo or house where the area lends itself to tourist and watch the money roll in! Payoff heloc do it again and again!

Katie,

I would definitely look into living in the midtown area, buying a multi-family and doing airbnb. I know you mentioned the school district and wanting to be in the a good school area, but depending on the age of your children, Jacob G Smith is a great school to be in. 

Hi there Katie. Sounds like you got some good responses.

I live in Savannah myself. 

Maybe you can add more funds to that 15k by putting off your needs for a bit and cross some trades on multi family or maybe a MHP.

You have some funds to invest in direct mail so you can generate leads. Flip the contract, after you have the deal.. You can add another 15k right there. This now gives you 30k less cost of mailing without using the equity on your home.

I guess what I'm saying is to leverage the funds you have now to give you more options in the future.

The best to you and family.

Richard

I think your original plan is a good one. You need more information. The first thing is to see what your husband can qualify for with his income and the cash you have now.  That will tell you what you can afford. Taking out a line of credit on your current home is an option. If you are thinking about it. Do it now before you rent it out. It is almost impossible to get a line on investment property. Check with your loan officer to see how that will effect your qualifying numbers.

Even if you buy something of the same value as your current home now you have two homes instead of one. That might be a good way to build your inventory. Check with your tax adviser for how often you can do this. 

Are you willing to purchase a home that needs some work so you can get sweat equity. During negotiations of your new purchase ask the seller to pay for some of your closing costs. That will reduce your out of pocket. It will also give you some practice with working with contractors if you decide to go full on with fix and flip concept.

Are you willing to offer rent to own? (Just means you are willing to sell home at a future date to renters. That might save you on Realtor commissions) 

Here are some rough numbers. If you do this 4 times with a gross net of $400 per month that is an extra $1600 per month. This number is high because you WILL have some expenses for maintenance and vacancy at some point. You will also want to vet the tenants to reduce chance of default and damage to home. That is always the down side to renting out your home. 

If you were to compare putting the 40K in the bank, your annual return when  comparing the interest to your rental income is 12% (4800/40000)

I live in Pooler if you would like to get together to discuss further.

katie I will piggy back on your plan and Belinda suggestion which are great by the way. I will add that, if possible:

1-Cash out refinance your current house to the max amount you can take out, if I'm not mistaken in some refinance you will skip a payment or two depending on the day you close (you probably know that already as a realtor)

2- Advertise you current house as a lease purchase and ask for 5%-10% no-refundable down payment make the rent amount higher than your mortgage payment to create some cash flow. The tenant end buyer is responsible for all the repairs and maintenance. Make the final purchase price slightly higher no matter the comps, a house is only worth what someone is willing to pay for it. Have in mind that most of the buyers that will apply have some sort of obstacle that they cannot go to a bank and get a loan, but that doesn't mean they don't posses the capability of pay a premium for the privilege of owning in the near future, if they don't come through with the agreement to purchase your house at the end of the term then you get to do it all over again with a different buyer, collecting another down payment and keep paying down the mortgage with their rent. Also their rent don't count towards the purchase price only the down payment and extra money above the rent amount, and that is only applicable if they buy the house at the end of the lease term, if they decide not to go through with it, they are saying bye to all the money they paid.  

While you are leasing your house with terms and collecting down payments, the rent is paying down your mortgage, you are getting cash flow and you don't have to do any maintenance to the property.

3- Find a cheap place to rent, let your landlord do the maintenance. A thing to consider about the school district: I used to live in Rincon and my kids use to belong to Blandford Elementary one of the best schools in Effingham in my opinion; but then we moved to Guyton and they changed them to Sand Hill, well my wife didn't like sand hill and she requested to leave them in Blandford, the only down side is they have to be car riders, they can't ride on the bus because is out of district.

Back to Funds...

So while you are paying cheap rent, leasing your house, and collecting all this money then is time to find some lease purchases deal yourself or owner financing with low money down. Find a house that still have a mortgage on it and offer to take over the payments or lease purchase it from the owners  with the right to sub lease it and use you end buyer down payment to pay for your down payment with the seller. This strategy works best is there is good cash flow and the house is fairly below market value since you will be making payments to the seller sometimes up to market rent. Let the equity build up and refinance to take out the seller. That will lower you monthly payment and increase you cash flow.

Find a owner that will let you do owner finance with a low down payment, there is so many creative ways to structure a deal with owner financing. Right now I have a house that I am ready to buy with owner finance with nothing down, principal only payments with a one year balloon. A year might not sound good but no interest sounded better and I get $200 cash flow from my end buyer, his rent will pay for my payments to the seller and I will only owe $45k at the end of the year, after getting a loan, my mortgage will be around $390 and my cash flow will increase to $500 per month.   

Last piece of advise is: use you marketing money wisely, if you don't have a lot, scrubs those lead list good for potential deal and correct info. I did a campaign of 390 yellow letter, all homemade, with a list a acquired and at least 100 have come back undeliverable, some came back with land parcels without a house, some came back with address incomplete, no mail receptacle, the person doesn't live there no more, right out of the gate I lost almost half of the money I spent. So now I look at every address ( do to my lack of funds) to make sure my mail pieces make where I want them to go.

I hope this helps. let me know if I can be of any help.