First OOI in a few months! Any tips?

Question

Hello! I am 23 years old and decided to invest in real estate about 6 months ago. I am invested in the stock market and was able to use my mother as a mentor but have no such help when it comes to real estate. Which is why I am here!

I have been looking at duplexes and multi-family homes in the Manchester (NH) area in hopes of getting this plan together before the lease at my current apartment is up. I live in Manchester now, and have about $3,000 saved. I put together a personal financial statement together today and if I live on beans and rice for the next few months, I should be able to save about $10,000 for a down payment this summer. I just started actively looking on Zillow about 3 days ago. It is early in the process but looking cannot hurt and I have been reading everywhere that finding a great deal is everything regardless of what type of property investing you are doing. Also, is New Hampshire a good place for a first real estate investment or should I consider long distance. I have read that long distance complicates the process, but I have also been told New Hampshire is notorious for terrible property tax to make up for their lack of other taxes.

I have been researching loans and think that an FHA loan would be best for my first real estate investment. My credit is good (770) and I could get a cosigner if needed. My job only provides about $22,000 a year and my debt-to-income is .3% above the <43% DTI ratio banks like to see on an FHA loan. However, I read online that you can use monthly rental payments you are receiving from the property when calculating the DTI ratio.

I would hire a team to help me once I got the duplex (and other future property investments) but am not entirely sure if this is necessary with such a small and simple first investment. I am also not entirely sure where to get connected with such a team.

Is getting an LLC worth it this early? I plan on getting a small apartment complex next hopefully before the end of 2021.

Is getting my real estate license worth it? I will be graduating from college with my Bachelor’s degree in finance March 2022 and would probably not consider taking the course until then but it is something I am considering for the future.

I spend virtually all my free time (2-5 hours a day) reading on real estate and am learning very quickly but wanted to reach out from people who had real experience!

Please feel free to share your experiences and knowledge with me. I am so hungry to learn (and earn)! :)

Best,

-Ben Leary

Brian Dano · Answer

I would join the local real estate investors association (http://nhreia.com/), and network. Until you have more saved up executing in Manchester will be tough. You could also pull in people to invest alongside you, but that comes back to networking. Personally based on your situation I would recommend house hacking, build equity and get a transaction under your belt. Ask a resi agent to put you on a mls drip for duplexes, try to get a 3% loan, just model in the mortgage insurance.

Cody Barna · Answer

@Ben Leary It sounds like you're on the right track, I'd recommend upgrading to a pro account so you can start running the numbers on of the properties you find on Zillow. This will be good practice once you're in the position to start making offers. It would be a good idea to look for a higher paying job, not only would that allow you to save faster but it also helps to qualify for a loan. If your goal is to purchase a property within the next year, I'd stick with a W2 position since lenders typically only require 6 months of pay stubs. Compared to being a 1099 (self employed) individual, which commonly requires 2 years of tax returns to qualify. The last thing I'll mention being that I've grown up in Manchester and currently still live there. Is that the majority of multi families are located close to downtown in the less desirable areas, this will make it tough to find a decent tenant that pays on time and doesn't destroy the place. Plus if you're using an owner occupied loan, are these neighborhoods you feel comfortable living in? I recommend driving through some of them to get a feel of the area...Manchester St, Spruce St, Merrimack St, Amherst St, Concord St. Another option would be finding a single family that needs minor cosmetic work, this would allow you to make improvements over time and increase equity in the property. Eventually you could turn it into a rental or sell it after 2 years tax free. This route would allow you expand your search criteria and not be limited to specific areas that multis tend to be found in. I hope this help, don't hesitate to reach out if you have any questions.

Dan Thomas · Answer

@Ben Leary I grew up in Goffstown, which made Manchester the obvious choice when I started considering real estate investing. I was disappointed when I started looking at property's and rent to value ratios just didn't make sense when compared to options in the South. I personally chose to invest down south but it does come with its fair share of headaches being so far away. I agree with the advice above, you should consider a fourplex over a duplex for a house hack as you will optimize your 1st mortgage, it also makes vacancy an easier pill to swallow. I also agree with the advice above about saving more, I couldn't believe all the expenses that came with buying my first investment, you need to be prepared for that. Good Luck.

William Dinsmore · Answer

@Ben Leary also if you are thinking of utilizing the FHA then you should look into the FHA 203k loan program, which gives you a renovation component to your purchase so you can buy a building up to 4 units, fix it up, live in one unit and rent out the rest. The bank takes the other units rent into account when qualifying you for the purchase. This is a great tool for a starting investor who can move in and live on site for some time.

William Dinsmore · Answer

@Ben Leary one of the first steps in your team building is to get hooked up with a great Realtor that will help you find deals and purchase the properties you do find. I just so happen to be a great Realtor and licensed Home Inspector in NH so feel free to connect with me if you have any questions!

Starting small is better than not starting at all so good job with that! Seeing the goal and making small sacrifices to achieve it is a great approach!

Joshua Tessier · Answer

@Ben Leary

I own 12 units in Manchester with one in an LLC. Doing an LLC on your first property is worthless in my opinion. I’d push you to do two things first reach out to a mortgage broker. I can give you a few names just message me. Your credits great but you need more savings so work that. Get your income up so you can save more. Then abandon the two family. If you want to really get into real estate the money is in the number of units so look for a four unit property. These still qualify you for owner occupied mortgages and with 5% down mortgage on a $450,000 your talking $22,500. Use that as a goal. Find a way to save $20,000 and then your golden! You can get 3.5% percent loans but if you start at 5 you’ll have a path no matter what.

First OOI in a few months! Any tips?

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