Investing with FHA, Conventional loan, I'm confused...

12 Replies

I apologize in advance, I'm new here.

So I know somewhat when it comes to real estate and the types of financials needed, I'm still currently reading the ultimate beginner's guide that BG provides as a refresher. I keep reading and hearing the creative ways to finance an investment property. I would like to do rentals, but I don't want to be living in them at first. For example, If I choose FHA or conventional loans, those two have a requirement to live in the house for X amount of years.... I feel like that would kill my BRRRR. How do you as investors do it? Or started. I'm based in Orlando, and work for a major airline as a flight attendant[29 years of age]so I don't have big amount of money but i have some more than average(I would like to think)

@Elvis Sosa

I started with buying a duplex, living in and renting the other side out as an AirBNB. I bought the property on auction and started fixing it. You're right, it'll kills my ROI but it decreases my expenses dramatically.

I

@Elvis Sosa you don't have to live in the property if it's conventionally financed. Only FHA requires you to live there for a certain time. We conventionally finance our rentals (so far) and have put 20-25% down on them to avoid PMI.

@Elvis Sosa . Elvis, haven’t you read about house hacking? It’s a great strategy to get started and start building a rental portfolio. The big advantage is by buying as an owner occupant you get more favorable loan terms, such as lower down payment. If your investable funds are such that you’re not prepared to put down 20-30% on an investment property, this allows you to buy sooner. For the second property either save up 20% or more down payment or wait until the occupancy period is past. For some loans I think it’s only one year. However even for investment properties you have a seasoning period of 6 months before you borrow against the full value. Bottom line, don’t let this stop you.

Originally posted by @Jeff Ronningen :

@Elvis Sosa. Elvis, haven’t you read about house hacking? It’s a great strategy to get started and start building a rental portfolio. The big advantage is by buying as an owner occupant you get more favorable loan terms, such as lower down payment. If your investable funds are such that you’re not prepared to put down 20-30% on an investment property, this allows you to buy sooner. For the second property either save up 20% or more down payment or wait until the occupancy period is past. For some loans I think it’s only one year. However even for investment properties you have a seasoning period of 6 months before you borrow against the full value. Bottom line, don’t let this stop you.

*sighs* I won't just want to keep the dice rolling as much as I can. Thank you for your response and advice!

Originally posted by @Matt Leber :

@Elvis Sosa you don't have to live in the property if it's conventionally financed. Only FHA requires you to live there for a certain time. We conventionally finance our rentals (so far) and have put 20-25% down on them to avoid PMI.

This is a relief to me! Thank you for your response!

Originally posted by @Elvis Sosa :
Originally posted by @Jeff Ronningen:

@Elvis Sosa. Elvis, haven’t you read about house hacking? It’s a great strategy to get started and start building a rental portfolio. The big advantage is by buying as an owner occupant you get more favorable loan terms, such as lower down payment. If your investable funds are such that you’re not prepared to put down 20-30% on an investment property, this allows you to buy sooner. For the second property either save up 20% or more down payment or wait until the occupancy period is past. For some loans I think it’s only one year. However even for investment properties you have a seasoning period of 6 months before you borrow against the full value. Bottom line, don’t let this stop you.

*sighs* I won't just want to keep the dice rolling as much as I can. Thank you for your response and advice!

 I don't understand what your response to the poster above means.  House hacking is one of the best ways to get started.

Buy a duplex or quad (the best) and then live in one of the units. Use the lender's FHA 203K to renovate the property to your standards so you don't waste your money. Then do it again next year. Your job lends itself to buying houses all over the country.

@Elvis Sosa   Agree with the above posts, living in a unit is a great way to start.

However, if you're set on not living in it, or doing the BRRRR (which means the place may be unlivable to start and you're putting in a lot of rehab), then options like HML or small banks are a good start.

I bought a REO property once that was unlivable, for $50k. Went to the local bank that knew about the property, and was able to get a loan for 20% down ($10k). They provided 25k in rehab financing, so a total loan of $65k (40k purchase + 25k rehab). The place when finished appraised at $110k.

I was then able to go back and refi at 75% LTV, So that's $82k, which paid off the original $65k loan, plus I got back my $10k downpayment and a little more, which then gave me money for the next place.

So a good example of real life numbers. And working with a local bank, there were some closing costs with all of the above, but only a few thousand. No points either.

Good luck!

- Tom

Originally posted by @Elvis Sosa :

I apologize in advance, I'm new here.

So I know somewhat when it comes to real estate and the types of financials needed, I'm still currently reading the ultimate beginner's guide that BG provides as a refresher. I keep reading and hearing the creative ways to finance an investment property. I would like to do rentals, but I don't want to be living in them at first. For example, If I choose FHA or conventional loans, those two have a requirement to live in the house for X amount of years.... I feel like that would kill my BRRRR. How do you as investors do it? Or started. I'm based in Orlando, and work for a major airline as a flight attendant[29 years of age]so I don't have big amount of money but i have some more than average(I would like to think)

If you dont want to live in the property you quite frankly wont be able to get the low to no money down conventional and FHA programs, however there are other options.

Some hard money lenders will allow you to go up to 90% LTC or loan to cost (100k purch 35k rehab example would lend 121,500) this means you can buy a property and not live there with as little as 10% down. In this case the 10% down is roughly 13,500 dollars. You'll have to fix it up quickly so the hard money lender or HML doesnt eat you alive with their high interest rate and points.

You'll want the property to be valued high enough so that youll be able to refinance and pay back your HML and hopefully pull some money out of the property.

That is the key of doing a BRRR strategy. The problem many folks get wrong is that exit or ending refinance. If you dont get the value right you may not be able to refinance or worst yet you may have to bring cash to pay down your loan to a certain percentage to complete your end refinance.

Best of Luck,

@Elvis Sosa as was mentioned, for BRRR deals you're either going to bring all the cash (which doesn't sound feasible) or use a HML. Something I just thought of that you might want to consider though; if your job keeps you in a different city for some nights throughout the year you should do a house hack and list your unit on AirBnB for the nights that you won't be there. Does work ever keep you from home or do they plan to have you back in Orlando every night?

Originally posted by @Mike Bean :

@Elvis Sosa as was mentioned, for BRRR deals you're either going to bring all the cash (which doesn't sound feasible) or use a HML. Something I just thought of that you might want to consider though; if your job keeps you in a different city for some nights throughout the year you should do a house hack and list your unit on AirBnB for the nights that you won't be there. Does work ever keep you from home or do they plan to have you back in Orlando every night?

 This sounds like a good option as well, I can be home and or work as much as I decide, also there's family homes where I can be during the time of investing(that's some plus I have).

Originally posted by @Albert Bui :
Originally posted by @Elvis Sosa:

I apologize in advance, I'm new here.

So I know somewhat when it comes to real estate and the types of financials needed, I'm still currently reading the ultimate beginner's guide that BG provides as a refresher. I keep reading and hearing the creative ways to finance an investment property. I would like to do rentals, but I don't want to be living in them at first. For example, If I choose FHA or conventional loans, those two have a requirement to live in the house for X amount of years.... I feel like that would kill my BRRRR. How do you as investors do it? Or started. I'm based in Orlando, and work for a major airline as a flight attendant[29 years of age]so I don't have big amount of money but i have some more than average(I would like to think)

If you dont want to live in the property you quite frankly wont be able to get the low to no money down conventional and FHA programs, however there are other options.

Some hard money lenders will allow you to go up to 90% LTC or loan to cost (100k purch 35k rehab example would lend 121,500) this means you can buy a property and not live there with as little as 10% down. In this case the 10% down is roughly 13,500 dollars. You'll have to fix it up quickly so the hard money lender or HML doesnt eat you alive with their high interest rate and points.

You'll want the property to be valued high enough so that youll be able to refinance and pay back your HML and hopefully pull some money out of the property.

That is the key of doing a BRRR strategy. The problem many folks get wrong is that exit or ending refinance. If you dont get the value right you may not be able to refinance or worst yet you may have to bring cash to pay down your loan to a certain percentage to complete your end refinance.

Best of Luck,

 Thank you for this valuable insight kind sir.