first time home buyer, undecided on strategy, seeking advice

Curt DavisBusiness Member

Flipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes

6y

I agree that house hacking with a 4 unit would be a great strategy. My biggest concern for you is that you have a very small amount of cash reserves which when you have repaired ( and you will have them ), my concern is you will not be able to cover them which puts you in a very bad spot. Even if you were a really handy guy, the materials could be expensive.

I am not trying to be Debby downer but that is where I see your biggest issue.

Your credit score should be at least 620, otherwise, you may have a hard time qualifying or if you do your interest rate will not be that good.

Save up a little more for reserves and improve your credit score.

Good luck!

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1 Reply

Robert Matelski

Rental Property Investor · Austin, TX · Member since 2018 · 214 posts · 270 votes

6y

Originally posted by @Solomon Kim:

Hi--I'm new to this forum and new to real estate investment in general. I'll be a first time home buyer and would love to get my housing situation figured out while also leveraging my first-timer status to get my real estate portfolio started off with a home run. After a bit of due diligence, my kneejerk reaction is that house hacking a multifamily home is probably a logical course of action, but I wanted to run it by you all to see what you would do if you were in my shoes. To that end, here are all the pertinent details about my situation I can think of. Thanks so much, in advance, and I'm looking forward to talking with you all!

I'm a 38-year-old single dude with no dependents (unless you count my adorable puppy), living in the Cleveland area.
I make about $65k/year from a job that I've had for over three years. I take about $41k of that home.
I'm currently fixing my credit--according to Credit Karma, my Transunion and Equifax are 587 and 599 and appear to be trending slowly upward. I have one active credit card, which I use to cover my regular expenses, and which I pay off in full every month.
I have no debt (other than whatever incidentals currently happen to be on the credit card).
I have no money saved outside of a small emergency fund ($2500) and my 401(k) (currently about $25k)...
...but I'm fortunate to be in a temporary situation, wherein I pay no rent. Now that my emergency fund is built, I will be putting $2500 away per month moving forward--I intend to use this money for whatever my first real estate investment move ends up being. Hopefully, the timing of that move is such that it coincides with my credit scores reaching 620 or better.
I do not want/need a lot of space for myself--I would not be opposed to living in a tiny house except that I want a real bathroom with a real toilet and real plumbing. I DO, however, want my own space, with no indoor common areas or roommates (unless you count my adorable puppy)--sharing a wall in a duplex would be acceptable.
I would like to quit my job in 2022 and either move on to a different industry or devote myself to real estate investment full time, but it wouldn't be the end of the world if I stayed at my job.
Other than my job, there is nothing tying me down to Cleveland, but I do love it here.

If you love living in Cleveland then stay in Cleveland for sure. There are tons of investors literally all over the world who are fawning over the Cleveland market in 2020 and wishing they could be physically closer to more easily get in on the excellent opportunities there... you've got a huge leg up on so many since you are already there and you like it there! And you have a pretty solid income.

With a credit score in the neighborhood of 600 you actually can usually qualify for an FHA mortgage (though you won't get the best rate, it won't really be that huge of a difference in terms of monthly payment). My advice is to save $$$ for a few more months then in the summer this year get pre-approved for a loan and have your favorite licensed real estate agent start showing you properties. If you're doing FHA you can get in with a down payment of 3.5% plus closing costs... though in a lot of cases you can get the seller to pay at least some, if not all, of the closing costs, especially if you are paying the full asking price and the property has been on the market for a while. Try to find a duplex in good condition in a C-type (or even low B-type) area. Even better if it happens to have one vacant unit and one occupied unit. It has to be in good condition to qualify for FHA but it is ok if the fixtures and finishes are old and dated. Try to stick with duplexes priced at about $100K or less for your first one... you can still find these in places like Garfield Heights, Newburgh Heights, or in Cleveland proper in neighborhoods like North Collinwood (off of Lakeshore Blvd., east of E. 152nd) or maybe Old Brooklyn if you're lucky. The rent from the other unit will cover most if not all of your housing expenses, and you can keep saving more from your job AND building up your credit by paying your mortgage payment on time for a year or two, then you can move out of the place, rent the unit you have been living in, and buy something else (which will be easier the next time around since you will have saved a lot more money and you will have a better credit score by then). Then do it over and over until you have like 10 duplexes.

1 Reply

James Wise

Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes

6y

Originally posted by @Solomon Kim:

Hi--I'm new to this forum and new to real estate investment in general. I'll be a first time home buyer and would love to get my housing situation figured out while also leveraging my first-timer status to get my real estate portfolio started off with a home run. After a bit of due diligence, my kneejerk reaction is that house hacking a multifamily home is probably a logical course of action, but I wanted to run it by you all to see what you would do if you were in my shoes. To that end, here are all the pertinent details about my situation I can think of. Thanks so much, in advance, and I'm looking forward to talking with you all!

I'm a 38-year-old single dude with no dependents (unless you count my adorable puppy), living in the Cleveland area.
I make about $65k/year from a job that I've had for over three years. I take about $41k of that home.
I'm currently fixing my credit--according to Credit Karma, my Transunion and Equifax are 587 and 599 and appear to be trending slowly upward. I have one active credit card, which I use to cover my regular expenses, and which I pay off in full every month.
I have no debt (other than whatever incidentals currently happen to be on the credit card).
I have no money saved outside of a small emergency fund ($2500) and my 401(k) (currently about $25k)...
...but I'm fortunate to be in a temporary situation, wherein I pay no rent. Now that my emergency fund is built, I will be putting $2500 away per month moving forward--I intend to use this money for whatever my first real estate investment move ends up being. Hopefully, the timing of that move is such that it coincides with my credit scores reaching 620 or better.
I do not want/need a lot of space for myself--I would not be opposed to living in a tiny house except that I want a real bathroom with a real toilet and real plumbing. I DO, however, want my own space, with no indoor common areas or roommates (unless you count my adorable puppy)--sharing a wall in a duplex would be acceptable.
I would like to quit my job in 2022 and either move on to a different industry or devote myself to real estate investment full time, but it wouldn't be the end of the world if I stayed at my job.
Other than my job, there is nothing tying me down to Cleveland, but I do love it here.

Welcome aboard dude. If you love living and working in Cleveland no reason to leave. Very easy to make money in this market if you know what you're doing. The barrier to entry here is one of the lowest in the USA.

1 Reply

Corey Hawkinson

Rental Property Investor · Bloomington, MN · Member since 2019 · 404 posts · 542 votes

6y

@Solomon Kim I agree with the others. Stay in Cleveland. Lots of out of state investors are searching Cleveland as a great place to invest. If you can get over seeing your sports teams fail almost every year (and I’m from Minnesota so I understand) Cleveland is a great place.

Also, do some research on improving your credit score. There are things that could help that you might not think about. For example, you say that you pay off your credit card every month, obviously keep doing that, but consider asking them to increase the maximum amount. The credit score factors that percentage (monthly balance vs maximum amount) into the calculation.

1 Reply

Solomon Kim

OP

Member since 2020 · 4 posts · 1 vote

6y

Thanks for all the input thus far, everyone! I took sort of a cursory look at some of the Cleveland and Akron forums and there appears to be a LOT of good information specific to these markets in there. I can definitely see why analysis paralysis can freeze a lot of people from breaking into the real estate game at all.

A couple of you have made comments regarding credit, and I actually have some questions about that... I began taking steps to improve my credit about 8 months back (I was interested in getting my personal finances in order before I considered doing anything related to real estate). My credit is jacked because of some mistakes I made some years back, and one of the mistakes I made was closing out all my old credit cards, thus resetting the clock on my history when I opened the only credit card I currently have. When I log into creditkarma, though, it shows two open accounts on record--the other one is one of the afforementioned closed credit cards. I called Huntington Bank to ask about it and the representative told me that they can show up on credit reports for up to 10 years after they're closed. The funny/lucky thing about it happens to be the one credit card that I was never delinquent on, so I think it's actually helping me because it's nearly 6 years old and therefore brings my average account age up to ~3 years. So that brings me to my questions...

Am I correct in assuming that this is helping my credit rating?
Is there any way to know exactly when that old credit card account is going to fall off my reports?
When it does fall off, will it affect my credit score enough that I should currently be in a hurry to secure a loan?
How long should I expect it to take to reach 620 (currently 587/599), assuming I continue to do everything right?

0 Reply

Account Closed

Investor · Northern MN & WI · Member since 2020 · 55 posts · 64 votes

6y

@Solomon Kim I’m not sure what situation permits you to live rent free or how much of a drag that must be, but every month you live rent free, you are investing. I lived in a camper for almost 2 years at very low cost, which allowed me to pay off a mortgage on a rental, then I remodeled it and sold it, which really supercharged my next investment. It’s best to set a goal, an amount you want to save and a date you want to save it by. Make sure it’s flexible because you have to be ready if the right deal comes along. The right deal is very important, especially for your first one, because you need some room to make some mistakes, and trust me, everybody makes a few.

1 Reply

Solomon Kim

OP

Member since 2020 · 4 posts · 1 vote

6y

Originally posted by @Account Closed:

@Solomon Kim I’m not sure what situation permits you to live rent free or how much of a drag that must be, but every month you live rent free, you are investing. I lived in a camper for almost 2 years at very low cost, which allowed me to pay off a mortgage on a rental, then I remodeled it and sold it, which really supercharged my next investment. It’s best to set a goal, an amount you want to save and a date you want to save it by. Make sure it’s flexible because you have to be ready if the right deal comes along. The right deal is very important, especially for your first one, because you need some room to make some mistakes, and trust me, everybody makes a few.

Yeah, searching for ways to leverage my newly-supercharged rate of savings is what got me looking into real estate investment in the first place! I've never been one for setting tangible goals, but it definitely seems like a habit of anyone who is successful at this, so I'd better do it too...and the other thing that it seems like everybody does is read "Rich Dad Poor Dad" so I did that over the weekend too. :P

0 Reply

Solomon Kim

OP

Member since 2020 · 4 posts · 1 vote

6y

Originally posted by @Account Closed:

@Solomon Kim I’m not sure what situation permits you to live rent free or how much of a drag that must be, but every month you live rent free, you are investing. I lived in a camper for almost 2 years at very low cost, which allowed me to pay off a mortgage on a rental, then I remodeled it and sold it, which really supercharged my next investment. It’s best to set a goal, an amount you want to save and a date you want to save it by. Make sure it’s flexible because you have to be ready if the right deal comes along. The right deal is very important, especially for your first one, because you need some room to make some mistakes, and trust me, everybody makes a few.

Also, could expand a bit on what you mean when you say to make sure the goal is flexible? ...please and thank you!

0 Reply

Account Closed

Investor · Northern MN & WI · Member since 2020 · 55 posts · 64 votes

6y

@Solomon Kim First, very smart on the Rich Dad Poor Dad read. I’ve only recently read it and have been intentionally investing in RE for 7 years. It’s a great book.

So, what I mean about being flexible is this rule that "You make all of your money when you buy the property." That's not meant to be taken literally, but it stresses the importance on getting good really good deals so that you maximize your ROI. Most of us on here have made mistakes early on that resulted in less than ideal returns. My deal like that was my first land deal, which was 40 acres split by a tributary river. The property also had a highway easement running through it. I thought I was getting a great deal, but I didn't understand important things like setbacks and topography back then. Ultimately, I figured out it wasn't as valuable as I thought, so I got out at a little more than what I paid for it, but with taxes, holding costs, and fees it was a net loss.

While you’re stacking your chips, sharpen your tools. Start analyzing deals and get smart, super smart in the market and type of investment that interests you. This is crucial because when you get smart, you might find a deal that you can’t pass up, that’s why you have to be flexible. Some people feel like you ‘just got to start somewhere,’ beginners don’t have as much room for mistakes. Be patient, be smart, be flexible, then pounce when you see the right opportunity.

1 Reply

Mya Toohey

Real Estate Agent · Tampa Florida · Member since 2013 · 630 posts · 303 votes

6y

@Solomon Kim

Don't forget about this!

"If you have a traditional IRA, you can borrow up to $10,000 for a down payment without paying a tax penalty if you are a first-time homebuyer, although you will have to pay income tax on the loan. If you are married, each spouse can borrow up to $10,000 for a total of $20,000" Thanks google! Just an idea to help you leverage your investments.

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first time home buyer, undecided on strategy, seeking advice

first time home buyer, undecided on strategy, seeking advice

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