Should I live in with my first rental property?

Question

Hello world!

I am a recent graduate with a full time position as an engineer looking to make my first deal and continue on my family's real estate venture.  My parents started a real-estate business when we moved to the US from S. Africa and have a hand full of rentals so far. I want to start my own venture and am considering buying my first investment property as a live in. I have a mid 650 credit level (as I just recently re-consolidated all my debt and will start paying monthly payments when I receive my approval letter). I have been renting for 5 years and have never missed a payment.

Is this a good route for kick starting my real-estate investment portfolio?  Are there any recommendations or alternatives to consider?

Thanks for the insight!

HJB

Chris C. · Answer

Yes, live in rental is a great way to get started!  For many, it will be the first time actually owning real estate (and all the ups and downs the come with it)  It also allows you to put lower money down. (as low as 3/3.5%) so if you were to buy a 100,000 place, it would only cost 3500 (plus closing costs)

Hendrik Burger · Answer

Thanks @Christopher G.!

I assume that a %3.5 payment is a great start by going the live-in way, but what are some of the ways that I can look at reducing my closing costs? Are there any techniques I can look to for negotiating a closing cost payment from a seller?

Christopher G. · Answer

I would definitely "house hack" if that is an option. Just like @Chris Connolly said, you can have a low down payment (3.5%) and also the potential to have other tenants pay your mortgage for you. You may end up being paid to live in your rental. Good luck to you!!!

Hendrik Burger · Answer

Thanks @Chris Connolly! The tip about the low down payment is a good thing to think about!

Also Ali, I took a look at your website and I absolutely love your deals that you have been posting on Hipster. Especially the locations in PA! Are there specific reasons for looking into the Harrisburg/ Mechanicsburg areas? I see a lot of your properties listed in PA are concentrated there.

Hendrik Burger · Answer

Hey Ali, that's really cool! I'm a combustion engineer these days, but I specialized in modern dynamics and controls. I'm mainly thinking about multi-family property (like a duplex or a triplex) but I don't know if others had broken their entry barrier in a different route. If I may ask, how did you start out?

Something extra, If you want to check it out I have a little website that tells people a little bit about my personal projects and experiences. A big reason for doing real-estate is to add to my personal resume as a business developer. I'm still very young in the name game but building a brand entity is something I aspire to as a life goal. Kinda part of the whole leave your country and start a new legacy over seas in the land of opportunity thing... I don't have a general direction yet but I figure starting with what I grew up doing and extending upon that knowledge base is a good start.

hendrikjburger.wix.com/leader

Thanks for your response!

HJB

Ali Boone · Answer

Hey Hendrick. What kind of engineer? I used to be aerospace. When you say doing your first investment property as a live-in, are you talking about house-hacking--buying a multi-family property and you live in one unit and rent out the other(s)? Or are you talking about just buying a house for yourself to start?

Hendrik Burger · Answer

Hey Cliff,

Thanks for your response. It is a little daunting trying to capture the entire picture but I believe that to be prepared with such a reserve is a good safety net, especially as a first house. I am personally aiming for a traditional mortgage at the maximum time allotted payback (30 year fixed) with 15% percent down on a ~110K loan. The mortgage will only cover an additional 10k for repair due to the fact that I can do installation of electrical, plumbing, tiling, framing, hardwood flooring and landscaping by myself. I'm prepared to get someone else to do drywall any day of the week. It is safe to say that I am prepared to really cut down on the initial state of the property during the deal with the state of mind that I will be spending two to three months night-owling the renovations myself.

For the rental agreement I'm intending to do rental applications with credit checks, proof of income, two months of rent and an annual contract.

What I believe is good about being a live-in is that you can transition out quiet easily and convert to a full rental property. You also have a higher likelihood of getting approval from a local bank if you present your business model, proof of income, tenant contract and maintenance budget.

I think the important thing about being a new buyer is to talk to at least two or three banks and starting a relationship about 6 months before making the initial bid for a mortgage (especially because we are both pretty small fish in this lake). This will give you time to get to know them, learn about what their expectations are and build up to them which leaves very few surprises when the day comes that you actually want to get a mortgage approval.

Also, a little extra tidbit that I just discovered is to look at sheriff sales. You can get $200,000 homes and flats listed for as low as the taxes owed on the property (sometimes as low as $20,000). The only thing you would want to do if you go this route is to get a good property lawyer who can fish out any pre-existing deeds on the property which can lead to an awkward "my grandma left me this property in her will" situations. Though they might charge $200 dollars on a search, it could pay out if you win a bid on a $40,000 property!

I will posted on my journey! I hope you will as well!

Best of luck,

HJB

Cliff Sands · Answer

Hi Hendrik,

I’m new here too so I’m not sure I’m much help but I’m in a similar position as you…looking to do my first deal. From all the podcasts and youtube video’s I’ve watched as well as books read, it does seem like the “live-in” house hack is one of the most recommended ways to get started.  I’m looking to do something similar.

What type of financing are you thinking of using?  Do you have the appropriate amount of cash reserves for a down payment? What about 6 months reserve for the property itself?

I’m really having a hard time finding a negative about doing a “live-in” house hack.  I would think if you maybe don’t buy it right, use the calculators on BP, or if maybe the reno gets in over your head…but other than that it seems like a great way to get started.

Best of luck, and please update the thread on your journey…would love to hear about it!

Cliff Sands

Should I live in with my first rental property?

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