Advice on 1st investment property

[Alex Long]

Hi all! New to BiggerPockets, and exploring my first investment property in Philadelphia. Targeting a 3-4 unit property thats relatively turnkey, not looking to rehab this one. Cashflow and long term appreciation are both important to me.

My first question is where do investers find deals?

I have been searching for a couple months, finding properties on MLS and zillow, have toured several with a realtor and am striking out. Feel like everything Ive seen falls into 1 of 3 categories: overpriced for the product it is/ poor condition, extensive deferred maintenance/ bad neighborhood.

This has me wondering is there a hidden market? Where are sellers or sellers agents going straight to investors/ buyers with these type of products before they hit the MLSt?

Second thing to share is that my goal is to combine this investment property into a house-hack, wherein I'd live in 1 unit, rent out the rest, and utilize conventional financing to take advantage of lower down payment and reduce my housing expenses by having tenants offset the mortgage. Live there 1 year, then do it again and start building a portfolio.

Last question, how do ensure you dont overpay? What returns do you look for? I have familiarized myself with the various metrics including cap rates, cash on cash etc and would love to learn the top metric experienced investors check first to know if something is a good deal or not. In philly, I hear that 7-10% cap is considered good.

Any insigts would be much appreciated. I'm here to learn, and am excited to network with folks who have experience. Thanks in advance!

[Jason Wray]

Hi Alex,

All great questions and important to ask these up front and avoid pitfalls or mistakes. One of the few things I teach my investors/buyers is to use the correct programs and "Do Not" put a ton of money down chasing a faster pay off. Ride it out with less down and utilize programs like a 40 year, 50 year or an FHA 203K loan for example.

The longer term is not for the long haul instead its for the immediate lower monthly price hence the 40 years or FHA 203K to buy a home that needs renovations to avoid buying turnkey or a home recently renovated and sitting as Maximum or slightly over true market value. You want to be the one improving the property, buying low and either selling or refinancing at the higher LTV or sale price.

You see the acronym BRRR here on the Bigger Pockets for a reason as well as other REI sites. Its so that you follow the Buy, Renovate, Refinance, Repeat process. You want to cash flow right out of the gate if possible with the ability to renovate and not just increase the Value (ARV) but also the possibilities of future rents.

Under a perfect scenario you can buy a home 2-4 units live in (1) unit rent out the others, do some slight renovations or what is needed and be able to refinance once you hit your 6 months title seasoning. At that stage is where if the value is high enough you pull out some cash via cash out refinance or HELOC. You typically use the 75% Rule of the ARV to check numbers.

Then use that money to put down on another home again as a primary or investment. When you use FHA for example you want to try and refinance at a lower LTV to convert to conventional which removes the FHA 12 month occupancy rule changing the "Intent to use" as primary to investment.

There are several ways to avoid overpaying. It requires a good amount of steps and detail. This is where I work with my clients and a seasoned agent to utilize BPO's, USe software to run an accurate CMA, Rent market analysis, ARV report and Renovation costs, time and materials list.

It's important to run your numbers up front including the PITI, any HOA's, Property management, Taxes are on the property appraiser site or clerk of court and run an online Home owners insurance quote. The other doors/units rents add up and then subtract the total debts. You want to look at the numbers up front to see if the other units offer cash flow after the PITI payment, what your portion would be and in the long run total cash flow once you move out and rent the unit you were occupying.

If you ever have any questions feel free to reach out I am an investor but also an FDIC Banker for The Federal Savings Bank. I enjoy helping all investors New or Seasoned avoid lost time and lost money by using loopholes or understand all of the New programs out there to use to put less down and the guide lines to follow.