In Maryland (Should I Buy and renovate or Rent?)

6 Replies

Hi everyone!

Currently I am thinking about buying and renovating a home in my area (Maryland), and financing through the bank through 203b loan (which covers renovation?). However, I only have about 12k in cash savings. I liveian an apartment right now and am torn between maybe using the bank to explore the other route and buy a rental property, renovate it with my savings then rent out and make 300-500 per month (after paying the mortgage). 

   It seems that every time I try to buy a foreclosed home right now, that may be a great deal, the bank will have so many people interested in the property that they will send it back to auction. And the way the bank does auctions they have so many fees IE: inspections, escrow money, (pretty much expenses that exceed 12k..) so if I do win the bid.. I don't have any money to make any other repairs.

How can I begin my journey?

Hi Mike, Welcome to BP!  A couple of things, first I would evaluate how much cash flow you can get from these rental properties.  I may have misunderstood, but want to make sure that you are doing your calculations right.  Make sure that you are factoring other expenses like repairs and vacancy, not to mention holding costs, property management, etc. when calculating your cash flow.  (it isn't just rent payment - mortgage = profit, or we'd all be rich, haha)

It sounds like, though you live in an apartment, that you aren't crazy about your living situation.  If you want to take a run at being a landlord, and improve your own home situation, you might take a look at a small multi-family property like a duplex.  It will give you a chance to have a new place to live, first hand experience being a landlord, and if done right can allow for the rental income to have you living rent free!

This can give you the opportunity to save your hard earned cash for another rental, flip, or just for general savings.

Good luck, keep us posted!

Andrew Bertram

I agree a duplex or house hacking would be a good way to get started.  If you haven't owned you may even be able to take advantage of a first-time homebuyer program.  Just make sure the residency requirements match your investment plan.

Hi Andrew & Jesse

Thank you for your responses. I have thought about a duplex. I need to do as you said Andrew, and figure out all of he factors that are going to come into play when buying an investment rental property. I was actually hiking about buying a property in this city for cheap, and renovating with the cash that I have. I have a Fiance who wants to leave the duplex/apartment setting. That's why we were looking for a home to buy though the bank and then use a loan to renovate and eventually re sell. However would be nice to have a supplemental income from investment property upon moving Into a home we may stay in for two years, and then empty to re sell After renovation

Mike

I would first have a discussion with a loan officer from a lender that offers 203B loans to be sure you understand everything about that loan program. Typically you may need a credit score of about 640 or higher but check with a lender. You should also ask yourself if you can really afford it. If you buy a house that needs fixing up where will you live while you are doing the rehab and what expenses will that entail?

Its sounds to me like you have no experience doing a rehab other than simply thinking about it but of course I do not know. Even people with experience miscalculate when costing out a rehab and error when determining or estimating the amount of time it will take to do a rehab. Once you borrow you will be making payments whether you are living in a house or not and whether you have other expenses or not. 

Do not be in a hurry to get yourself into debt. You are already doing something right by covering your living expense and being able to save money. Consider to just keep doing what you already have been doing for a while longer so you save up more money and will be better able to handle the expenses of home ownership. When you have been renting the owner has been covering the expenses of the property, insurance, property tax, maintenance, and other related expenses. You may be surprised at where expenses derive from when you are the owner.

Land lording is not always as simple as just thinking you will get someone into your rental unit and voila, you will have extra cash every month. Do not get yourself into a position where your financial well being, credit and otherwise absolutely depends on someone paying you their rent on time. Have a cash reserve.

I'm not trying to tell you what to do or how to do it. I am just suggesting somethings to think about. Think about establishing and maintaining a maintenance budget for your property. Be prepared in case a major expense presents itself. 

I wish you and your fiance the best, good luck to you.

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