Am I financially ready to buy my first SFH
Member since 2020 · 3 posts · 0 votes
Hello PB,
I’m eager to get my real estate journey started, but I want to be sure that I am financially set up to take on my first home.
I’ve been working hard to pay off all my debt and saving money for a rainy day fund. The only payment I have right now is a $460 monthly personal loan payment ($17,000 left, 2.99% fixed interest). I make about $5,000 a month, and my job is very stable.
How much should I have saved up to buy? I will be using the VA loan, so I won't need a down payment.
I’m excited to be part of the BP family and will appreciate any advice! Thank you!
VA loans are great if you plan to house hack and live in your property. They've recently become much more strict about "checking to be sure you actually live there", so you'll want to play by the rules if you're going that direction. Also, purchasing a 4-plex is absolutely the best use of your VA money. Rent out the other 3 units to cover all expenses plus cash flow. As a general rule, any good financial manager, advisor or accountant will tell you to have 6 months in liquid assets to cover any unforeseen damage, maintenance or bills if you lose your job (you never know). It used to be 3 months, but the smarter answer is 6. BUT, don't let that dissuade you from getting into a property sooner rather than later - you just have to be more diligent about saving back a larger percentage of your income for a longer period of time (think Ramen noodles instead of steak dinners) until you have that cash buffer.
Last, as a financial advising professional, let me leave you with this. There are several high interest accounts these days - and I'm talking 0.5% as opposed to zero in a regular savings account at 0.05%. Push all your liquid assets into an interest bearing account like this so it's not wallowing in the "no interest" zone. It's better than nothing!
Good luck, feel free to reach out if you need any more help!
Lee
I don't know what you'd qualify for off the top of my head but with a VA loan know you'll be living in whatever you buy for a while, but you'd want to save up enough that you would be able to handle multiple repairs at the same time so I'd say minimum $7k-$10k but that's just me.
VA loans are great if you plan to house hack and live in your property. They've recently become much more strict about "checking to be sure you actually live there", so you'll want to play by the rules if you're going that direction. Also, purchasing a 4-plex is absolutely the best use of your VA money. Rent out the other 3 units to cover all expenses plus cash flow. As a general rule, any good financial manager, advisor or accountant will tell you to have 6 months in liquid assets to cover any unforeseen damage, maintenance or bills if you lose your job (you never know). It used to be 3 months, but the smarter answer is 6. BUT, don't let that dissuade you from getting into a property sooner rather than later - you just have to be more diligent about saving back a larger percentage of your income for a longer period of time (think Ramen noodles instead of steak dinners) until you have that cash buffer.
Last, as a financial advising professional, let me leave you with this. There are several high interest accounts these days - and I'm talking 0.5% as opposed to zero in a regular savings account at 0.05%. Push all your liquid assets into an interest bearing account like this so it's not wallowing in the "no interest" zone. It's better than nothing!
Good luck, feel free to reach out if you need any more help!
Lee
@Lee Fuhr
Thank you so much for your advice! I’ll definitely budget more into my start up fund.
In terms of looking for multi-family homes: those in my area seem to be in pretty run down neighborhoods, would that still be a worthwhile trade off than buying a SFH and house hacking for a year?
Thank you again, I really appreciate the help.
Eliot
@Eliot Coulter if I were in your shoes, I think the multi-family homes will be your best ARV over a shorter period of time. We have a real estate agent on our team who is a local from this area, born and raised, and he can tell me what areas are on the rise and what areas aren't. Having someone on your "team" like this is absolutely invaluable. Pay them a fee for every investment property you purchase, even if it's an off-market deal. I pay mine $1,000/property for off-market listings. He specializes in property values, neighborhood knowledge, and the ability to tell us what the property will appraise for if it was in tip-top shape. He shows us probably 20 houses for every one we buy, so that $1,000 is chump change for the access and expertise he brings to each of our deals.
I'm also a member of several Real Estate Facebook groups and would be happy to add you - these groups are wonderful for quick questions and general knowledge. I would also recommend you get connected with your local REIA group - most have a Facebook group where listings are posted and questions are posed. Mine has been an invaluable resource as I have learned the basics and networked in my local area.