How much money did you start off with?

Question

How much money did you have before financing your first property? My Goal for this year was to acquire a multi family home to start house hacking. One thing let to another so I’m having to postpone that goal for another 3-6 months due to lack of funds. I started trading stocks and I’ve made decent money doing so. Was able to pay off my debit card completely off, so now I have more cash flow to put in my savings. I’m a little nervous on the amount of money that I will need. I currently do qualify for a conventional loan (home possible) but I know it’s kinda like a car Loan, almost anyone can qualify but paying for it is the problem. I have enough for a 3.5-5% down payment but my concerns come with repair/rehab cost.

If you guys don’t mind me asking at what point did you feel comfortable enough financially to pull the trigger ? Thank you.

Danielle Wolter · Answer

@Juan Alvarez I don't know if this will be helpful or not, and others may have differing opinions. Personally, I like to keep at least 6 months of living expenses in cash reserves, so I made sure I had that first. Things come up that you don't expect, you know? If you plan on house hacking, 3.5-5% should be plenty for a down payment if you qualify for an FHA loan. If you're worried about your ability to pay, you don't have enough saved yet. As far as rehab costs go, you can get zero interest credit cards, but that is a slippery slope, especially if you're already concerned about your ability to pay for the mortgage.

I was comfortable when I knew that if a property went vacant, I could continue to pay on it for at least 6 months, as well as continue to pay my every day living expense. And I always enures I have a way to recover rehab costs, whether it be through rents, flipping, refi, etc. And always be conservative. My estimates are always very conservative so I've accounted for everything (I hope) that could happen.

Patrick Menefee · Answer

@Juan Alvarez I completely agree with @Danielle Wolter about reserves and an emergency fund. Do you have an emergency account with reserves for your current life expenses, or when you say you have enough for a down payment is that all the cash you have?

If it’s the latter, dont buy anything until you have a cushion of 3-6 months living expenses saved AND a plan to cut your expenses down drastically to stretch it out should the worst happen.

Then, once that is funded, build a small reserve fund for the house. Yes househacking is fantastic and can free up a lot of income, but now you also go from someone who can make a call to get his leaky roof fixed for free to having to pay for it out of pocket. You need another cushion (this could be interest free credit cards as mentioned, but also dangerous)

Finally, you can put money towards the down payment. Only after the rest are set should you buy.

Bad scenario #1 is having a major capital expenditure once you move into your new house

Bad scenario #2 is losing your job and having to live on no income

Really bad scenario #3 is both happening at the same time

Cataclysmic scenario #4 is both happening at the same time with no money because you spent your last dime on the house (also called bankruptcy)

Account Closed · Answer

@Juan Alvarez I started with $5k. I house hacked a duplex with my husband and it was cheaper for us due to the tenant paying the cost of out mortgage versus us paying rent. I wouldnt advise this but we were so eager and inexperienced that we put a lot of reno costs on out credit cards however, it actually worked out in the end.

My thought process was to get in and get going. Utilize your friends and family that are willing to help, find good deals, and do your research. If you plan to stay in the property for a little bit, you have time to do reno work as the money comes. We did an FHA loan so we knew we had to stay at least a year.

Account Closed · Answer

@Juan Alvarez Yes, it covered the full cost of the mortgage

Ryan M. · Answer

@Juan Alvarez

Go out and get an unsecured business line of credit before you need it. I have a few from large national and regional banks. You can use them for whatever you need, but stick to using them for short term buys and rehabs. They are like credit cards, but they shouldn't show up on your credit report. If you have good credit it's the cheapest and easiest way to get access to fast capital when you need it.

Juan Alvarez · Answer

@Suny Capezzuto thank you. That’s what I want to do as well. Planning on staying there a year then move out. If you don’t mind me asking, was the tenants rent covering the mortgage??

Juan Alvarez · Answer

@Danielle Wolter thank you so much. Great advice!

How much money did you start off with?

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