Investing in Real Estate in Vancouver, WA -Beginner
Flipper/Rehabber · Vancouver, WA · Member since 2018 · 5 posts · 0 votes
See the agents BiggerPockets members work with in Vancouver, WA.
See agentsHi @Blake Ingram and welcome to BP! I think you are on the right track and the BRRRR strategy is a great one... especially if you combine it with either house hacking and/or doing a live in flip. Can you clarify a couple things? When you say "I know a General Contractor myself that could help with the project in the renovation. Using this as a way of paying off the mortgage." how would that help pay off the mortgage?
To clarify the BRRRR strategy; when someone buys ("B" of BRRRR) a property that needs work, and they put the work into it (or Rehab, first "R" of BRRRR), it increases the value of the property which would result in the owner having more equity. If the owner has enough equity in the property the could then Refinance (the third "R" in BRRRR... the second "R" is rent) which would give them cash to go out and buy more property... ie to Repeat the process (the final "R" in BRRRR).
From what I can tell it sounds like you're looking to house hack ("...buy a Townhouse, renovate the house and rent out the other side."). The beauty of house hacking is you can purchase an income producing property with the advantageous terms of a residential mortgage (you wouldn't need a hard money loan). There are loan products out there for residential buyers that allow you to get into a property with a very low down payment (0-10 percent). If you were to purchase a property without a residential mortgage (ie you weren't going to live in it or it was 5 units or more) you would be looking at at least a 20 percent down payment. The best way to figure out if you qualify for one of these types of loans is to go talk to a lender (it's free and they'll answer all your questions). PM me if you'd like a recommendation or two.
Another thing to keep in mind; If you are using a low down payment, it's not really realistic to expect to be cash flow positive. When an investor is looking at being cash flow positive, they are typically putting down 20-25%. If you are in a high demand metro area, it's simply not realistic to expect to be cash flow positive if you are putting down 0-10%.
Now if that is all the capital you have, that is what it is....is it better to keep renting than to buy? Typically it is better to buy. Better to build your own equity through the debt pay down, enjoy the tax benefits of ownership, and garner the equity of an appreciating asset. You just can't expect to cash flow on an initial purchase with a low down payment. Now with time and rent growth, what could be a negative cash flow property might very well become a cash flow king, but that takes patience.
Another way to increase cash flow would be renting out rooms in the unit you live in, either Airbnb or longer term.
If you'd like to meet up and chat more about it I'd be happy to do so.
Best of luck and keep us posted!
@Blake Ingram, You may want to look into a FHA 203k loan that will let you wrap in the renovation costs into the loan. This is what I did for my first property and it worked out well. There is some extra fees so be aware of that.
Hi @Blake Ingram and welcome to BP! I think you are on the right track and the BRRRR strategy is a great one... especially if you combine it with either house hacking and/or doing a live in flip. Can you clarify a couple things? When you say "I know a General Contractor myself that could help with the project in the renovation. Using this as a way of paying off the mortgage." how would that help pay off the mortgage?
To clarify the BRRRR strategy; when someone buys ("B" of BRRRR) a property that needs work, and they put the work into it (or Rehab, first "R" of BRRRR), it increases the value of the property which would result in the owner having more equity. If the owner has enough equity in the property the could then Refinance (the third "R" in BRRRR... the second "R" is rent) which would give them cash to go out and buy more property... ie to Repeat the process (the final "R" in BRRRR).
From what I can tell it sounds like you're looking to house hack ("...buy a Townhouse, renovate the house and rent out the other side."). The beauty of house hacking is you can purchase an income producing property with the advantageous terms of a residential mortgage (you wouldn't need a hard money loan). There are loan products out there for residential buyers that allow you to get into a property with a very low down payment (0-10 percent). If you were to purchase a property without a residential mortgage (ie you weren't going to live in it or it was 5 units or more) you would be looking at at least a 20 percent down payment. The best way to figure out if you qualify for one of these types of loans is to go talk to a lender (it's free and they'll answer all your questions). PM me if you'd like a recommendation or two.
Another thing to keep in mind; If you are using a low down payment, it's not really realistic to expect to be cash flow positive. When an investor is looking at being cash flow positive, they are typically putting down 20-25%. If you are in a high demand metro area, it's simply not realistic to expect to be cash flow positive if you are putting down 0-10%.
Now if that is all the capital you have, that is what it is....is it better to keep renting than to buy? Typically it is better to buy. Better to build your own equity through the debt pay down, enjoy the tax benefits of ownership, and garner the equity of an appreciating asset. You just can't expect to cash flow on an initial purchase with a low down payment. Now with time and rent growth, what could be a negative cash flow property might very well become a cash flow king, but that takes patience.
Another way to increase cash flow would be renting out rooms in the unit you live in, either Airbnb or longer term.
If you'd like to meet up and chat more about it I'd be happy to do so.
Best of luck and keep us posted!
Just add to the discussion, often a first time buyer is best buying a 2 unit property as Blake mentioned above with only a 3.50% down payment and adding in the cost of the rehab to achieve some optimal rent from the other unit using an FHA 203k rehab loan. The nice aspect of that loan is the value will be based on the rehab work to be done after closing. Meaning you get the benefit of knowing what the place will be worth with X dollars of rehab now and what the future rent will be from the rehabbed unit. An Appraiser will value the property off a written contractors document describing costs of rehab and exact updates to be done. Then rent will be forecasted by Appraiser by survey of nearby rehabbed 2 unit propertie's monthly rents. If the numbers look weak or unappealing then cancel the contract.
There is a similar Conventional loan called HomeStyle as an alternative to FHA 203k that requires a 15% down payment on an owner occupied 2 unit property. Works the same way as FHA 203k but at less cost. FHA is often the best of the two since it has such a low down payment. Both loans still will use 75% of Appraiser projected gross rent as extra monthly income to qualify for loan size needed, always a plus. Also these loans are fixed rate for 30 years so cash flow can be projected without the pressure of a Hard Money lender and high rates/fees they all usually have. I use these for my clients and write about them in my Blog stories below.
Vancouver, WA? Nice! I was just up there 2 weeks ago looking at properties (homes). However, I found the homes too expensive and the rents too low to make it work (at 20% down), but maybe I'm just not doing it right. My main goal is to rent for now and retire in the house down the road. That was my plan with the St. George, Utah house, but my new wife isn't keen on rocks. I stumbled on this site today and have much to learn. I've been a landlord for 8 years. I will post my own thread after I look around. I just saw Vancouver, WA so I had to put in my comments. So, I'm sorry to but in, as it were. Mike
I don’t think you are going to find a private lender that will allow you to borrow 100%.
Especially if you are going to use this as a primary, you would be better off doing a renovation loan versus a private money loan. There is the FHA 203k as mentioned above which is 3.5% down. FHA does have more fee's - but is the best solution for a MFR with the least out of pocket for a down payment. Also, the Homestyle renovation loan requires 3% down for a first time home buyer - SFR and 5% down if someone is not a first time home buyer for a SFR. HomeStyle requires 85% LTV for a 2 unit and 75% for 3-4 units.
Let me know if you want more info on either of these financing options.
@Blake
Congrats on taking the next steps into investing on RE. If I was starting off I would do it the exact same way you are, looking into multi family homes and let your investment pay you. As has been mentioned both the 203k and HomeStyle are renovation loans. That would help you accomplish the goal of buying/rehabbing essentially any property. I am a national lender who specializes in these loans and would be happy to provide any insight on the mot efficient way to get your property to settlement.
Best of luck!!!