Real Estate Agent · Philadelphia, PA · Member since 2020 · 5 posts · 6 votes
I'm 19 years old and working as a full-time agent in January. Along with planning to hit my financial goals through commission, should I go for buying a single-family with an FHA loan and house hack or do a flip?
My initial goal was to get a single-family home to keep long term, live in the place with 3-4 other roommates for 2-3 years. Keep renting out the place to tenants. Make passive income from there.
However, I was advised to do a flip instead to invest in multi-family investments. I just want some advice or tips for someone as young as me getting into RE investments.
Also if you have book recommendations related to real estate investments, please list them!
Real Estate Agent · Portland, CT · Member since 2019 · 761 posts · 849 votes
5y
Hey Lena,
Why not do both?
You could focus on the house hack first. This will get your foundation in place as you will have a place to live and live there for free. Picking up a single family home is a relatively simple process. Also, if you acquire a single family residence that does not need too much rehab, then you will have plenty of time to work on a flip immediately afterwards.
You will be required to stay in your house hack 6 - 12 months at a minimum so you will have plenty of time for other projects such as a flip.
You can definitely do this. Good luck and enjoy the ride!
Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes
5y
@Lena Oeun I think a big part of this comes down to your finances too. An FHA loan will let you get into a livable house for 3.5% down. Most good flips will require you to either pay cash or have a "cash-like" offer (hard money lender). The HML will likely require at least 10% of purchase price, but also hefty fees and reserves. In the current world, I believe most HML have upped their down payment requirements, so you will likely need more cash on hand to take down a flip.
The second issue you could run into is securing a loan at all. Most real estate agents are commission only, and classified as self employed. Your situation might be different, and if you have a current W2, it is a lot easier to secure a loan, but if you are 1099, commission only, you could run into trouble trying to get an FHA loan, as they will likely want at least one, if not two, tax returns to prove consistency of income.
But to answer your question: in this market, I am a much bigger fan of flips. Retail buyers are driving up prices to the point that I cannot comfortably make the numbers work for any rentals. And if you are buying a "finished" house, you are banking on appreciation that may or may not be realistic (I don't see how the macro economic environment can get any better for sellers: near zero interest rates, extremely low supply and high demand currently).
Flips are risky and stressful. Nearly every flip we have done has gone over budget, and that is after nearly 20 renovations of various scales. Nearly every flip has gone over timeline. If you run out of money and have no other capital sources, you are stuck holding a half finished house. If you have a HML, that loan is costing you a good chunk of profit each month, on top of other carrying costs. Flips can be very profitable, but that profit comes with risk. Ways to mitigate those risks: start calling contractors now and talking with a many as possible. Read up on construction, home inspections, home improvement, things to look out for, etc. And when looking at properties, you want to find solid houses with ugly carpet, or needs a roof and furnace replacement. Mechanicals and roofs are fairly easy to get good contractors in (at least in my experience), and scare away many buyers because they are fairly costly.
If you are an agent and represent yourself in the buyside of a house-hack, you may be eligible for about 3% commission which is just about the same price of an FHA loan.
Once you get the house-hack, hopefully, your tenants will help pay off your mortgage.
New to Real Estate · Leavenworth, KS · Member since 2020 · 9 posts · 4 votes
5y
This is also a question I am currently debating. In my market, houses are selling within days and at/above list price. So there's the obstacle of trying to get a decent price for a buy and hold. Like Evan said, flips may be better for you. That depends on if you want to delve deep into learning the fundamentals of how the flipping process would work.
Would love to hear about which route you've chosen!
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