Opportunity for my first rental property, need help with closing

Brandon McMullin · 2018-05-27T15:40:23-07:00

My friends parents had moved to another state and is living in a new house, there old house is all prepared for the market, but not yet on the market. I had a chance to look at it and it looked very clean. I was mainly going to try fix and flipping to start off my real estate investing journey, but this deal here could be a potential good deal for my first rental property. There is just one thing, I do not have enough money saved up for 20% down for a conventional fixed rate loan.The property is within 15mins from where I live (northern Illinois), The ARV is around $165-170k. I was going to put in an offer at 100k. no repairs are needed to the property, they are very motivated to sell though. again, I am new at this but have done my fair share of research and also am excited to say I start classes soon to have my real estate license. I have $10k to go towards this offer. and that is simply not enough... is there another way for me to buy that I don't know about. would an FHA loan (3.5% down) and me living in it for a year be a good decision for me to capture this deal? I just want to be prepared if they do accept 100k.Thankyou!

Karen MargraveBusiness Member

Moderator

Realtor, General Contractor, and Developer · Redding, CA · Member since 2009 · 7k+ posts · 4k+ votes

8y

I know NOTHING about that market, and hopefully someone that does will jump in. How confident are you of the value? If you can qualify for am FHA loan and are willing to live there for a year, that's certainly an optioin, and may be the best one, as you're probably already paying rent someplace.

I'd have a home inspection to make sure there's no major issues that you'll need to deal with. Have you done comps? Good luck.

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Teri Feeney Styers

Real Estate Agent · Grand Junction, CO · Member since 2015 · 1k+ posts · 736 votes

8y

@Brandon McMullin you used "ARV" when describing the value. So - does it need repair or not? Or do you mean it is worth $165? You have $10,000 and talked about living there for a year - which is an option - but is this the house you would buy with your $10K all things being equal? The house is vacant. The house is clean. The sellers are motivated. But why would this be a good first deal for you? If not $100K what would be a good enough number? Would they owner carry the property for a time? I don't think you have asked yourself enough questions yet and I don't think you have enough answers yet.

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Anthony Dooley

Investor · Columbus, GA · Member since 2014 · 2k+ posts · 1k+ votes

8y

@Brandon McMullin you only need 20% down if you are trying to avoid PMI. You can put 10% down and get financing as long as your DTI and credit score are good. I don't recommend living in it unless you live there for two years, then sell for a tax free profit.

Assuming they accept your offer, how much will it rent for? This is the first question that I ask myself. If it will rent for $1000 per month, then you will get your down payment back in 10 months.

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Brandon McMullin

OP

Rockton, IL · Member since 2018 · 21 posts · 4 votes

8y

Karen- I guess I should have used the term Comp, instead of ARV. Comparable houses are all around the 165-170k mark. maybe I will consider moving in..

Jessica- Thats not the attitude to have! There are plenty examples/Stories out there, people do accept low ball offers, its just not very common by any means, but I believe there is nothing wrong with spitting out an offer, the worst that can happen is they say no.. there is always a possibility though..

Teri- sorry I should have used the term " comp" instead of ARV.. as far as I can tell it needs no repairs. I figured this would be a good deal for me because I would be buying a house worth 170k, for 100k. This is why I joined bigger pockets forum, to ask for your everyones thoughts and to gain knowledge. and what do you mean when you say if they owner would carry the property for time? do you not think it is a good deal? If I buy it and live in it for a year, or however long the FHA loan would let me, and sell it. I can see around a 50k profit for my first deal.

Anthony- Houses that size, and location, I can easily rent for $1700-$1800 a month and I have confidence it would rent out very quickly, I know several real estate investors in my area and all of them say that they get tenants right away. what kind of loan are you talking about that I only need 10% Down on? I could live in it for 2 years, debt to income is very good and credit score is good..

Again, just wanting to hear everyones 2 cents on it and help is appreciated :)

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Zack KarpPro Member

Lender · Schaumburg, IL · Member since 2015 · 833 posts · 774 votes

8y

@Brandon McMullin where in IL are you? I run a mortgage branch in Schaumburg. Sounds like a good deal for you.

As an investment property, you are correct 10K won't be enough. The max LTV is 85% so you would need a minimum 15% down payment plus closing costs and reserves.

As a primary residence, there is also a 3% down Conventional option which IMO would be better than FHA if you qualify. Because then if you are house hacking for a year or two, you won't need to refi to get out of FHA, and you will still have FHA available for your next purchase.

Make sure you are using a rockstar investor-friendly loan officer who is helping you structure this the right way and looking out for your best interests. Not only now, but for the future.

Hope that helps and best of luck!

847-387-5513

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Brandon McMullin

OP

Rockton, IL · Member since 2018 · 21 posts · 4 votes

8y

@Zack Karp Im located in northern Illinois, around the Rockford area.

Nice to meet you! I may just pass on the deal, I am actually taking a real estate license class soon to become an agent, so for future purchases it will save me some cash for all the fee's.

Thank you for your input though!

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Opportunity for my first rental property, need help with closing

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