First time buyer, found dream property. Minimum downpayment question

13 Replies

This will be my first foray into real estate. Currently looking at a beautiful 3 story multifamily brownstone in NYC area for 400k Three 1 br rentals bring in $2800 of monthly income. Rents can be higher. Owner pays the heating bill. Full basement for storage, backyard. Only problem I have is I only have 40k in the bank but also have a steady income of $3,800 a month with minimal expenses (Still live with parents, owe 20k in student loans) Is this property affordable for me and what is the minimum I would have to put down as a 1st time home owner?

I don't believe you have enough down payment for a 400k investment property.  I think you should start out smaller or if you are new consider turnkey properties.

Are you buying as a personal or a pure investment (or do you plan on living there)?  What are you planning on doing with it?

My husband has a transient job(active duty military). We started out buying single family as personals with the plan on renting them out when we left. They don't fit the exact biggerpockets mold but have worked very well for us.

If you are looking for a house so you can move out of your parents but have your mortgage subsidize than the numbers may work perfectly. As a conventional 5% down you world only have to out down 20k. A quick guess your mortgage payment will be $2,500 a month. If you  live in one of the units you will pay $633 a month plus utilities maintenance etc. So as a pure investment no but as a personal property it could be great! Really depends on what you are looking for!

Feel free to check out my blog/website. If I could find your type of unit in safe areas where we live I would do it in a heart bear if the numbers make sense  based on my plan. My biggest concern is you paying utilities because they get expense.

Thanks for the responses guys!

@Elizabeth C This will be a investment property I am looking to move into one of the units as I currently live on Long Island(with parents) 5 mins away from work. But i understand for the FHA loan I will need to make my investment property which is in NJ as my primary residence (not sure exactly for how long). I only work 3 days a week so i can always stay at my parents when I am working and reside in the investment property when I am off. But this will most definitely be an investment property.

Couple of key questions on this one.

1) I'm assuming you are moving in to this property because you said you were going to be first time home buyer which typically implies owner occupant purchase. Is that correct?

2) What is the property going to appraise out at? Is it worth 400k? 500k? 

3) Why is this a dream property exactly?

If you're buying as a first time home buyer, then I believe that 40k is going to be enough money for a down payment on a 400k house. There are definitely loan programs out there that would allow someone to buy with 10% down.

Is it a good investment? Part of that depends on what its worth today. 

Bottom line is that at 360k, your mortgage is going to be around 1,800 a month.

Taxes and insurance???? How much? You would have to answer this one.
Monthly Heat bill????? How much?
Expected maintenance???? How much?

Then you'd be getting rent for 2 of the units instead of 3 since you're living in the other one now. If 2,800 for 3, then 1,900 for 2?

So lets say the rent of 1,900 covers the mortgage payment.

That would leave you with a monthly payment for:
Taxes, insurance, heating bill for all 3 units, maintenance and vacancies.
Once you plug in numbers for those items, that should tell you whether you're getting a good deal and it makes sense. Is that a good deal to you? Cheaper than renting there in NY?

Also, I'm not sure if you'll qualify for the loan based on your income. 3,800 a month is your net or gross salary? If gross, that means you can only apply 37% of that to go toward all your monthly debt payments (student loan, car loan, credit card payments,) plus the mortgage (principal and interest), taxes and insurance (PITI)

I don't know if they'll let you count the rental income or 75% of your rental income towards your income to make the numbers work. Some banks might. Some might not.

There are a lot of variables here to consider. But I think the two key ones to me would be:
1) Will your bank count a portion of the rental income in your DTI calculation? If not, you won't qualify.

2) When you add up taxes, insurance, maintenance, vacancy, etc., does that come up to a number larger than what you'd consider a fair amount to have to pay for the unit you'll be staying in?  If it does, then is the principal paydown and tax writeoff you'll be getting worth the added difference?

You're at about $2400-2500/mo for just principal, interest and MIP on $380k. Plus taxes, insurance, the utilities you pay for tenants (heating bill), utilities for youself, maintenance, repairs, major item replacements, etc.

This is the property I am looking at.

3,800 is my net salary per month.

Taxes and insurance works out to 1900 a month.

@Rojan Jacob ,

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There are a BUNCH of expenses besides taxes and insurance.  This property will be deeply cash flow negative.   Perhaps there's a long term speculation play, but if you're looking for monthly cash flow, this isn't it.

If you live in a multi that's four or less units you can get a low down payment FHA loan. If you're not going to live in it 15% is about the least down payment possible.

Regarding "There are a BUNCH of expenses besides taxes and insurance. This property will be deeply cash flow negative." I can't agree more.

The idea of an "investment" is that it provides some tangible, positive return. You seem to be going in with a "dream" that that may happen. This looks like a nightmare. I don't understand it as an investment. If I were on Shark Tank.... I'd say 'Sorry, I just don't see your vision. I'm out!'

@Rojan Jacob My friend slow down! I know you are eager to find a deal but you still have a lot of learning to do when it comes to real estate.

Let's just say you can buy this property and you put 20k down. First of all the banks would never lend to you without 6 months of reserves. But besides that you need to have some extra money saved for emergencies. Plus whenever you buy a property you have to do repairs.

If I were you I would stay home for as long as possible and save up as much as i can, maybe payoff the loan debt you have first and continue to learn about real estate.

And in one year you will be in a better position to analyze deals and have more money saved.

@Rojan Jacob  

Another thing to note is that 45% is the magical number for debt to equity ratio. Assuming you have no other debt the highest of a monthly payment you can support is $1,710 a month. So you could not qualify for that place on your own.

I personally do not recommend FHA (3.5%) loans. If you can qualify and afford it you are better off doing conventional 5%. Both loans have pmi but conventional falls off when your loan to value is 78%. FHA has a funding fee and pmi never falls off. The only way to get pmi off is to refinance. As rates are going up you are better off locking in the low rates now if you can afford the slightly higher downpayment.

I understand that you are looking for an investment. Since you are going to be living in the house you can buy it as a personal with lower down and better interest rates YEAH! Buying houses as personals has huge benefits so this is a huge plus.

My husband is active duty navy so we are very transient career. We have bought houses as personal and than rented them out when we leave. For us personally as much as 2+ houses are a great "idea". We have never had luck finding one that makes sense. We  personally had lots of luck for single family homes.

Have you thought of buying a single family home and than renting out the rooms. While you will have to "Share", a lot of friends have had huge success. Often times they just pay utilities. I and our friends like single family because we have professional tenants often families rent the houses when we leave.

You are approaching real estate in the same way my husband and I did 3 years ago. I love talking this subject (heck I even create a website/blog). So hit me up if I can help!

Thanks for all the great feedback nothing but helpful yeah and I am thinking more with my heart than my brain lol, but I definitely agree with @Eddie T.  I need to just save up more and soak up all the info from the great people on BiggerPockets!

PS Elizabeth Colegrove Great idea I will definitely look into it. Thanks so much for your advice!

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