You’ll have closing costs of likely 3-5k on any property you buy. Which means you need the down payment plus closing costs plus reserves
With that in mind I’d keep saving your money or invest in a REIT
@Caleb Heimsoth My father is a banker and informed me that I could wrap closing costs into the mortgage. Should I not do this or is the information inaccurate?
Originally posted by @John LaVecchia :
I'm a 19 year old with no debt, just starting my real estate brokers license course this week. I was thinking of using $6,000 as a 3.5% down payment on a triplex or quadplex and holding the remaining $2,000 for reserves. Is $2,000 enough reserves for 3-4 units?
It's super awesome that you are debt free, have $8000, and that you are 19 and already thinking about ways to set yourself up for the future.
I'd definitely recommend building up some more reserves if you want to buy a multi-family because you will have closing cost and one usually pre-pays taxes an insurance.
Additionally, you'll likely need to spend some money on any property you buy for things such as painting and minor repairs.
You'll also want to have additional reserves so that you can cover unexpected big expenses such as a furnace repair or a refrigerator that quits.
Another solid option to consider is buying a single-family and renting out rooms. Some college people do this. You'd probably live for free or make a bit of money.
You're ahead of most people who are 19! Keep doing as much as possible to work on staying out of debt/minimizing debt as well as increasing savings.
If you can owner occupy a multi unit that could really be a great way to go. Its tough once you get used to living in your own home to go back to multi family living, but if you are in a spot to move in and start cash flowing and have your expenses paid for, you are going to be starting off well. And you can maybe ask the seller to pay for some, if not all of your closings costs. Even if it means paying them more for the property, it may be worth it to make the transaction possible. If you only have the $2000 left after the purchase though it may be worth it to really take your time to find a place that needs nothing fixed up or repaired. Wish you the best on whatever its is you do! Way to start young!
Make sure you keep plenty of reserves for rehab and closing cost and an emergency fund in case something goes wrong. $6,000 is a GREAT start and I would suggest having at least six months of Expenses relating to the property to ensure that you don't get caught in a rough situation if something goes wrong.
Great job at 19 to be planning for the future and always avoid debt unless it is to build your portfolio of rental homes.
Originally posted by @John LaVecchia :
Caleb Heimsoth My father is a banker and informed me that I could wrap closing costs into the mortgage. Should I not do this or is the information inaccurate?
You used to be able to easily. Now, you have to find a lender who will do it. It requires them bumping the interest rate slightly to get a refund on the back end that they can pass along to you. Keep in mind, it is costly to do this as your whole loan is figured on a slightly higher rate over the course of 30 years, which will equate to more than the closing costs were, but if you have to, then you have to.
Alternatively, you can ask the Seller to pay your closing costs as well. Just make sure that you account for this seller concession in the offer price.
For FHA, I believe you only need to show either 2 or 3 months of the mortgage payment (PITI) for reserves.
There will also be expense to your RE start up. You mentioned that you are going through RE classes. Are you planning on getting your license, or just taking the classes for the knowledge? If licensing, there is expense to get started (Activating with the Dept of RE, Joining a board, getting your MLS and lockbox key, etc). However, you will have a commission to either use toward your purchase (down payment of closing costs) or your reserves. So, that can help too.
Hopefully, you have some credit tradelines. FHA will allow you to use alternates if you don't have a car payment or credit car history. I have seen them use utility bill payment history. At 19, I hoipe you have something in the way of credit, but just be prepared that it may not be enough. Lenders generally like a 2 year history. And no credit is not good either (it SHOULD BE, but it's not).
Best of luck to you! Congrats!
If you are purchasing a property that appraises much higher than your purchase price or refinance price, then you should be able to wrap the closing costs into the loan. It is very important that you are getting a "deal" and not just a retail property that everyone else can buy.
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