First Investment Opportunity

First Investment Opportunity

Houston, TX · Member since 2015 · 204 posts · 68 votes

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? 

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Investor · Redondo Beach, CA · Member since 2013 · 147 posts · 50 votes
11y

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 K. is over there and would have a lot of valuable input. 

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  • Investor · Redondo Beach, CA · Member since 2013 · 147 posts · 50 votes
    11y

    @Greg Gibbons 

    You don't have to be a first time home buyer to qualify for an FHA loan. However, I believe in most cases you can only hold 1 FHA loan at a time. This is why I wrote earlier that one would have to refinance out of their original FHA loan first (after living there for a year) before going out to get another FHA loan in which you'd have to move into the 2nd property and stay there for a year as well.

    While there may be a way to keep your existing FHA loan and get a 2nd FHA loans, you'd have to make a convincing case to get that approved. That being said, the FHA was primarily established to support home buyers acquire a primary residence, not for investors to purchase rentals. So taking advantage of the FHA program with multiple FHA loans as an investor probably won't fly.

    @Amber KoontzAgreed. I love the forums and all that you can learn here. I learn something new every time I visit. 

  • Brandon TurnerPro Member
    Investor · Maui, HI · Member since 2009 · 13k+ posts · 3k+ votes
    11y

    Hey @Amber Koontz great idea! Rock on!

  • Real Estate Lender · Orlando, FL · Member since 2015 · 155 posts · 12 votes
    11y

    @Amber Koontz Lived in Houston for 4 years looking for connections for deals to fund or find deals.

  • Houston, TX · Member since 2015 · 204 posts · 68 votes
    11y

    @O'brian R. I finally figured out how to "@" your name! Lolz Thank you for clarifying. That is a great option for first time buyers. I've been researching everything on the FHA loan and the 6% concession thanks to you and another great connection I've made on here.

    @Brandon Turner Thanks!! Your story is very motivating! 

    @Eli F. Maybe we'll work together in the future. Good luck to you in the meantime. 

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