First Investment Opportunity

30 Replies

Hello all, I've come across a duplex that needs a bit if work for around $50,000. 6 bed 3 bath. I'm researching the area to see about the neighborhood and also what places go for in that area. I would stay in this place for the 2 yr timeframe needed to use this for my next purchase. I'm unsure of how to maneuver this. I need to get approved for a loan. Already approved for a regular house loan, but duplexes seem to be very different. There is a possibility for hard money inclusion, but I wouldn't know exactly if I have true source and if you can get that type of assistance when making a long term investment or holding. I also need to find a reputable construction company that could do the work to remodel this duplex. That brought me to also think about having someone come out to actually look at the property and tell me what all needs to be done. I'm thinking $15-$20,000 in the remodel. How much do I negotiate with the construction company as well as the seller? I have a million questions. I've only been saving for a few months now. I think my savings or start up could be decent by June however, this is for sale right now. Can anyone straighten my process out as far as help me focus on the key things and maybe more research material for lenders and construction companies as well as if this even a deal to make? 

Welcome @Amber Koontz

I'm assuming when you say that you're staying for only 2 years, that your plan is to avoid capital gains tax and then roll that into the purchase of another property. Just keep in mind for your duplex, since only 1/2 is considered your personal residence and the other 1/2 is an investment, that only a part of your sale proceeds would avoid capital gains tax (up to 250k or 500k if married). Though you can 1031 it, but the timelines for purchasing the second property to roll the gains can be difficult.

Have you looked into FHA financing with possibly adding a 203K rehab loan? Since you plan to live there, you can put as little as 3.5% down for a 30 year fixed loan. With FHA, you have to live there for 1 year I believe. If you're adding a lot of value by rehabbing the place, maybe in a couple years you can do a cash-out refinance to a conventional loan which would remove the mortgage insurance premium attached to the FHA loan. Then since you no longer have an FHA loan, you'd technically qualify to do another FHA loan at 3.5% down if you want to move into another multifamily (2, 3, or 4 unit). So instead of selling, you'd own 2 properties and will have avoided any capital gains tax. In summary, you avoid the capital gains tax all together, you keep your first duplex, have it rented out completely, and can repeat the process on a 2nd property with a lot more experience.

In terms of the Houston market, I know @Adam Kibler is over there and would have a lot of valuable input. 

@Amber Koontz - First, welcome to the Bigger Pockets community! 

I would encourage you to find a good Mentor for your first few deals. A good Mentor should have a heart of a teacher and be able to teach you what to look for and cost analysis when evaluating the rehab needs of a property, how to negotiate with the Seller and other parties (i.e. Contractors, etc) and how to secure financing. 

Best of luck! 

@O'brian R. Thank you very much for the advice! I heard about FHA loans and the great low percentage down. That actually could work well for me. I believe I heard of it here in a podcast. I have a big to do list of notes that I've taken. That totally slipped my mind.

@William Dampier thank you as well. Today I was learning more about ARVs and the 70% rule. There is also some great information for looking at properties with an inspection list. 

Guys I've read The Millionaire Real Estate Agent and soon the the investor.  There are so many opportunities or niches, I'm going to really start putting time into educating myself to set a strong foundation for action. Congratulations to you both on your success!

I hope to also gain some insight from Adam Kibler. 

1 out of three names I was able to get to populate with the @ leading. I'll get it soon enough. :)

Thanks guys

@Amber Koontz you can get traditional financing if the house is in livable condition. If not and you are new to this..... Keep in mid the rental loss and inexperience with real estate and rehabbing for your first property. Just don't get in over your head. If is great to start out with a house that you get for a great deal that just needs some cosmetics and build sweat equity. You can collect rent while learning as well, and not losing too much in the meantime. 

@Jerry Padilla thanks for the advice. I am a bit concerned about the rehab effort needed. From the pictures on this duplex it seems as if whomever left tore out things that were on the walls. I'm thinking that possibly could be more extensive than I imagine. I have reached out to the realtor to get more detail on the place and what's been going on. I came across this on realtor.com, I get emails on the type of listings I'm interested in. I definitely will not proceed without getting a clear assestment of the damages and the ARV.

Originally posted by @O'brian R. :

Have you looked into FHA financing with possibly adding a 203K rehab loan? Since you plan to live there, you can put as little as 3.5% down for a 30 year fixed loan. With FHA, you have to live there for 1 year I believe. If you're adding a lot of value by rehabbing the place, maybe in a couple years you can do a cash-out refinance to a conventional loan which would remove the mortgage insurance premium attached to the FHA loan. Then since you no longer have an FHA loan, you'd technically qualify to do another FHA loan at 3.5% down if you want to move into another multifamily (2, 3, or 4 unit). So instead of selling, you'd own 2 properties and will have avoided any capital gains tax. In summary, you avoid the capital gains tax all together, you keep your first duplex, have it rented out completely, and can repeat the process on a 2nd property with a lot more experience. 

Great feedback! I am just getting into real estate investing and am seriously considering the FHA route for my first MF prop. Needless to say, I have not thought this far ahead capital gains taxes and purchasing the second property but I like this idea. Granted you would have to live in the second MF prop if you're going to get the FHA loan, but you'd have a couple years experience under your belt now, low money down, and a fully rented MF cash-flowing for you. Very cool, awesome advice!

@Mike DeLeo

 Yes, that was great advice! I think for me it will be fine to stay a year and move to the next duplex only because I do not have kids. I want to be very successful before I start my family. What I hope to do is really familiarize myself with the ins and outs of being a landlord and contracts and everthing that to comes with effectively working with tenates  while occupying my first purchase. (A family member may occupy the other side). Lawyers, a handyman..... There is so much to learn, but I look forward to growing and diversifying my portfolio.

@Amber Koontz : I couldn't agree with you more, about becoming successful, establishing yourself, and then your family. This is exactly my plan. 

There is soo much to learn, but that's the exciting part about it all. Good luck with everything!

Amber you seem to have a good foundation. I strongly suggest you connect and build a relationship with a  good contractor. Especially when bidding on fixer uppers. A reasonable repair estimate should steer your offer price. Also, its good to familiarize yourself with general repairs and cost so you won't be taken advantage of by overpriced contractors. Bigger Pockets, Youtube tutorials, Home Depot, Lowe's and your local hardware stores will become your trusted sidekick if not already.  With each deal you will become more confident and knowledgeable. Good Luck!

We are making our first property purchases in Houston. Let me know if you find a good contractor!

I really recommend a full service general contractor on anyone's first investment purchase.  From there and with the experience you can find out what works best for you later.

@Germine James thanks for the advice. My foundation is not quite ready to build on, but with the great advice and knowledge I'm gaining from this site I will be ready to build upon soon! 

@Kevin Wood I will absolutely let you know what I come up with and good luck on your investing.👍

@Jerry Ta full service sounds great. I'll be researching contractors as well as taking Germine's advice on familiarizing myself on general repairs and costs. 

Good Afternoon Everyone

I have learned a valuable lesson early on and I have not even began to invest! This investment opportunity that I started this topic on has been sold. How? It seems that this was a great deal for someone. I brought this investment opportunity to my "real estate agent's," attention, and after a week of no communication I decide to check on the property status....Sold

It strikes me to be very odd how all communication has stopped and the opportunity is gone! Learning lesson never the less. Because I am still very new and learning, this could have easily been a learning experience as to how the deals are made. We had an understanding that I will be diving into investing as soon as I've acquired the fundamentals for succes. What I need to start off with. I thought this person, not on bigger pockets, would be someone that I would do a lot of work with in the future.

Moving on, I am still utilizing the resources on this site. I'm currently getting down the lingo and have just finished reading An Introduction to Real Estate Investment Deal Analysis by J. Scott. Great read! Now I want to practice getting the total return on investments (TROI) from deals that I come across. 

Just an update

@Kevin Wood  Good Evening 

I came across a contractor whom took a trashed house and refurbished the entire thing! Amazing to see what the house was before and what it is now. I wish I'd snapped a before and after. I haven't gotten a chance to get back inside to see the finished results, but these guys really did a great job. I've not seen any of their other work, but this alone has me very interested in working with them in the future. S.G.C. Remodeling / Additions General Contractor Victor Sandoval 832-643-9993. I'll be talking with them more. I got a card to hold on to for follow up. Maybe this will be a great find. Good luck to you!

Hi Amber... I feel your pain!  I looked at a fixer upper house and was prepared to make an offer.  I already had the contractor tagged to go through it with me, and had spoken with a banker about a loan based on the after repair value.  Bang!  After 3 years on the market with hardly any nibbles, this house got sold just as I was preparing to make the deal.  

This would have been my first investment in a flip or repair and hold since 1989, so I'm really counting it as my first.  I'm also looking into some duplexes, but since I already own a home and a mortgage, financing is going to be tight.

@Helen Kirk that hurts. All apart of the game I guess. Fine tuning jumping too fast or too slow is an art form! I'm very new at this and am still learning, but maybe you could use that as leverage. Does that make chances for an FHA loan difficult?

I checked with the bank, but will have to submit much more information to get pre-approval.  This may not be doable on my meager salary.  However, I do have a couple of mutual funds that I will be cashing in, so maybe a flip or going in with a partner will be better for getting my feet wet.  I'm also open to owner financing, if I could manage it.

I hear a lot of caution should be taken with flips. One minute your rehab cost is here and then the next "Houston we have a problem!" Partnering could be great, buy someone with your same goals. I'm thinking of partnering with my brother, but I think I'd like my first investments to be on my own. The idea of more collateral with a partner is very enticing. I'll be attending a local REIA event next month in which I'll be doing a lot of networking. Just looking for likeminded minded individuals that I may one day work with. You should keep an alert for your city and attend one. Start a discussion on here for what your looking for and I'm sure you'll get great feedback! I try to be active, so I'm sure we'll talk much more. Good luck to you!

Hello Amber, 

You sure did spark a great topic here and attracted some valuable comments.  My wife and I are currently looking for our first deal in Houston as well.  We are also looking for like minded individuals in Houston, for networking and/or partnering, so I thought I would reach out to you. The initial duplex deal that you started this topic with sounded great and is similar to what we wanted to find.  We would love to do a "House Hack" and live in/rent remaining units in Houston.  Do you mind me asking how you found a duplex for $50K??  We can't seem to find any multifamily for sale, let alone for $50k lol.   Happy Investing! 

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@Jermaine Williams Hello again. I use the  realtor.com and har app a lot. This one in particular came to me via email alert from realtor.com. I know this was a great deal, I just know it. I believe once I really know what I'm doing I'm going to be upset again! Lolz Too much of a beginner to make a move, but had it not been taken I do believe it would have been a great deal. (Buy and hold wise) Try out those apps Zillow is great as well, maybe the best because of the analysis provided.

@Eli F. Do you have any connections in Houston?

@Amber Koontz

Brandon quoted Richard Branson today on #AskBP:

"Business opportunities are like buses. There is always another one coming. "

Don't sweat the "one that got away".

@Doug McLeod Thanks. I'm going to listen to that. Bigger Pockets is already amazing, and then they add #AskBP!!! What I have to do is keep learning, networking, and saving for my first investment. 

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