First Property Blues

19 Replies

Hey BP! I appreciate you taking the time to read my post and any advice you can offer.

I'm having a little bit of a struggle trying to find my first home. I'm using a no money down VA loan to find my primary residence. I plan to live in the home for at least 2-5yrs. My goal is to find a home that cash flows, purchase under market value, do forced appreciation, cash out refi then use that money to buy investment properties. Easy right?! Uggghhh! 3 months later and nothing so far.

The issue I'm running into is here in Houston it's 90% SFHs and I'm being out bid every single time. The last 2 homes I was able to get under contract had issues that would not meet VA appraisal standards. The other issue is many of the homes I'm finding will not cash flow unless I put money down. I don't have that plus closing cost and renovation funds.

Any other VA loan users ever run into this problem? What was your remedy/strategy? Maybe I'm just not being patient enough but it's hard out here for 1st timers in this very competitive market. Especially in Houston. Thanks yall!

Hi Tia, are you running your numbers from a 2-5 year perspective as the numbers should alter some down the road, rents will raise, principal paid down, etc. You may have some different opportunities to refinance or add equity so keep the future in mind! I don't know how handy you are, but it could be a good opportunity for longer live-in flip type of situation, just an idea!

Forrest Faulconer

Originally posted by @Forrest Faulconer :

Hi Tia, are you running your numbers from a 2-5 year perspective as the numbers should alter some down the road, rents will raise, principal paid down, etc. You may have some different opportunities to refinance or add equity so keep the future in mind! I don't know how handy you are, but it could be a good opportunity for longer live-in flip type of situation, just an idea!

Forrest Faulconer

This is exactly how I would explain it to her as a seller. As a buyer, she's buying it today, not 2-5 years down a "projected" road. 

Sellers can presently get away with this crap because the multitudes are clamoring to chase prices, driven by FOMO, armed with low interest rates, and willing to accept bidding against those down the road projections.

I second the live-in flip @Forrest Faulconer (great name btw). I'm not sure this is an option for you Tia, but it may help to expand your search radius. When I moved to Illinois, I couldn't find a deal for me in Chicago, so I moved to a suburb instead. It was a little longer commute, but the money I made on the house was worth it. It's okay if the house doesn't cash flow immediately. If you can get a couple roommates, or even one, you can lower your monthly payment enough while you live there. Once you've got it in ship-shape, you can raise the rent and be good to go.

Originally posted by @David A. :
Originally posted by @Forrest Faulconer:

Hi Tia, are you running your numbers from a 2-5 year perspective as the numbers should alter some down the road, rents will raise, principal paid down, etc. You may have some different opportunities to refinance or add equity so keep the future in mind! I don't know how handy you are, but it could be a good opportunity for longer live-in flip type of situation, just an idea!

Forrest Faulconer

This is exactly how I would explain it to her as a seller. As a buyer, she's buying it today, not 2-5 years down a "projected" road. 

Sellers can presently get away with this crap because the multitudes are clamoring to chase prices, driven by FOMO, armed with low interest rates, and willing to accept bidding against those down the road projections.

 Yep, just saw a BP post on how can I alter my numbers to have investing make sense in this low inventory climate. Uhhhh????? I don't know about you, but if you can't make the numbers work in any climate you probably should wait or look a little harder.

@Tia Wilson

Invest for today, not for the future. I think it would be pretty foolish to run your numbers based on projections rather than realities, and for that I think you are correct in how you are running your numbers.

The reality is that if your market is anything like mine (CT) it's incredibly hot right now. Sellers are holding darn are all the power, and unless you come with an aggressive purchase price and seller friendly terms, you are getting outbid time and time again.

Many lenders will tell you that a FHA or VA loan is just as strong as a conventional loan, but the reality is they are not perceived as such by sellers and their agents. I don't necessarily think the issues lie in the VA standards, but rather in what the current market can support.

I think your best bet here is to continue to hit the ground, and put away as much into savings as possible. It's the unfortunate reality of the market that we are in at the moment.

@Tia Wilson this is common problem for VA and FHA loans because appraisal standards are more strict. Easiest way is to overcome this is switch the loan type. If you cannot do that, you will always be at a disadvantage in a multiple offer situation.

You could always offer over asking but you need to be confident it’ll appraise if you do that.

@Tia Wilson I second the option to purchase a duplex property.  There are some very nice duplexes, even new construction in the Houston area that are available for a decent purchase price and good returns.  Even better returns if you can do a low down!  I would highly recommend the duplex path since you can buy a great property in a B+ area.

@Filipe Pereira has some good points here. It is a sellers market for sure right now with such low inventory nation wide. Hard for a seller to accept a VA loan with tighter regulations on the home inspection when he has other offers that will be easier for him. I would continue to look and be patient, but know you may just have to wait until the market cools off a bit.

@Tia Wilson I know a solid agent in Houston who has helped two of my friends close VA loan properties that made sense, happy to introduce you.

Definitely don't run your numbers on what the property might look like in 2-5 years. 

I would personally recommend doing some direct to seller marketing, and trying to scoop a property up at a discounted rate without it ending up on the MLS. Given how hot some markets are right now that will give you an advantage.

@Tia Wilson I would switch to a conventional loan and save the Va loan for later, that's what I did I was going to use my va loan but I had better luck switching to conventional just a hair more on the interest rate and I had to put 5% down.

@Pete Husband I like the idea here. If you have the cash. I would say you likely need to broaden your search and everyone keeps saying it for a reason, but add a unit or two or theee and really keep your nose to the ground!!!! Go conventional, find a small multi snd you may be able to have better luck getting to closing.

There is some good banter here about future value and appreciation and numbers down the road. There are two sides to every coin. I suggest you pick the one that works well for you. A bird in hand is worth two in the bush...

Good luck. Stay hungry!

@Tia Wilson stay true to your numbers and what works for you — something will come up! I've waited 18 months for a deal before and it ended up changing my entire portfolio propelling me to a huge jump in my real estate 10 months later. Waiting to pull the trigger is fine as long as it's not out of fear.

@Tia Wilson

I understand how frustrating that must be, but I would absolutely advise you to wait a little longer and just save, save, save, save, save! There’s nothing scarier than owning a home and having a water heater breakdown or just any other issue that comes along and not having the money to repair it. The market has been so crazy lately, it cannot sustain at this pace so just wait a little longer and save as much money as you can while you’re waiting.

The VA loans are great for those that qualify, but mortgage payments with little to no down payment are frighteningly high. It's nearly impossible to see a scenario where it would cash flow in the current housing market.

Best of luck! I truly believe that that next fall we will have a higher volume of homes on the market which will stabilize prices a little bit.

@Tia Wilson sounds like you are on the right track and thinking. I would not force the numbers to work based on the climate, a lot of markets are over-bought and people are putting too much stock in the lower interest rates and continued appreciation. Make sure the numbers work and have patience. I just closed on a property yesterday in RI after analyzing over 2-dozen houses, and glancing at numerous more that I just threw away without even analyzing. The market is crazy but I managed to find something that I paid much less than appraised value for to weather any downturn. But there will still be challenges in this climate.

As some have echoed you may be hamstringed by the VA loan. I'm not saying they are bad but the problem is that VA and FHA have stricter standards than conventional. I'm not familiar with your market but in my area (Rhode Island) it is almost impossible to find a duplex or triplex that needs improvements and will pass FHA standards. Needing improvements is essentially a criteria for forced appreciation.

But don't give up, have patience, and don't compromise on the numbers. 

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