Is there a better way?

Question

My wife and I are looking to purchase our first home to live in. We're hoping to renovate and then refinance this home to have the cash to purchase our first investment property, ideally being a MFH. Since the goal is to build a portfolio, is there a smarter or quicker way to land our first investment property? We would like a SFH to call our home so starting out in a MFH and house hacking isn't that appealing to us.

David M. · Answer

@Dan Kim

Probably not a good idea to buy too properties at once for a first time buyer fora number of reasons.  You haven't been through the home buying process so you don't know/understand what to expect and the headaches that come along with it.  Lets face it, buying a home is stressful.  Lenders will be peppering you with questions and more documentation up until the day you close generally.  If you don't have time in the day to address and have the docs handy, it could slow you down and just add to your stress.

Also, what experience do you have with owning a home?  Additinoally, unless these are turnkey properties, do you have the cash to make the renovations and the cash to hold the properties until you can get the multi rented?

Furthermore, you started this post about basically brrr'ing your first home to have cash for the second property.  How do you have enough to buy two at once?

If you are trying to say a "simultaneous" purchase of two properties would be a "simultaneous first time buyer" situation, that won't work.  At least it shouldn't.  Neither would any of the benefits really be enough if somehow you qualified.There are usually income restrictinos...

Dan Kim · Answer

Thanks for the response @Jason Wray! Instead of finding a home with a bigger lot, would it be better to just build a home from the ground up? Do you know if building a home has a smaller ROI from a cash out refinance than buying a home and adding rooms/sqft? I'm assuming so if I spend less on the purchase of the already build home. Also, can you do a cash out refinance on a home that I build myself rather than purchasing one?

Dan Kim · Answer

Hey @David M. thanks for the reply! Definitely gave me things to think about.

What if I purchased a SFH and MFH at the same time? That would essentially be 2 mortgages, right? Would that be a good move for a first-time homebuyer? I know there are some benefits for first-time buyers and I wonder if those benefits would extend to this situation.

Jason Wray · Answer

Dan,

A good way to start is find a home in an upcoming area that offers a larger lot so you can add rooms/sqft.  Fannie Mae & Freddie Mac both offer low down payment programs as well as renovation options as well.  You might get lucky and with some TLC or renovations after (6) months be able to do a cash out refinance.  You also have an option to put 20% down to avoid PMI and still get a HELOC up to 95%CLTV as a back up for either renovations or money for the next purchase.

David M. · Answer

@Dan Kim

hmmm...  It really all depends on the numbers and what becomes available that works for you.  I think its sort of obvious:

Whatever sfh your buy for yourselves, you need to get it low enough to pull out enough cash for your next deal.  You also need to the resources to do the renovation and also qualify for the final loan.

Another way would be to buy the MFH first, live in it, renovate one unit, move into the renovated unit, then renovate the other unit(s).  Just be able to find your sfh you want to live in before you lease out the mfh.  Normally, you should be living in the mfh for 1 yr because of loan terms...  Of course, you need to be able to hold the mfh without any incoming rent.  But, that is not much different than your first option of buying a sfh and basically brrrr'ing it...

Hope that helps.  Good luck.