Bought my first place, what do you think?

15 Replies

I recently bought my first home in July in Phoenixville, PA!  I had been searching for the right place for many months and finally came across a pretty good deal in the area.  I bought the place for $173,500 and appraised for $180,000, which was a nice surprise.  I am currently renting out a room to one of my friends for $350 and splitting all utilities (electric, gas and cable).  In November, someone else will also be moving in as well.  My plan is to live here for a year or 2 and turn it into my first rental property.  I would love to get my next property within a year.  Similar homes in the area rent around $1500 per month and my P&I is about $1150.  

When buying the house, I was looking for a place that could rent out for more than the monthly expenses, so free equity!  I think I did a pretty good job of finding a place that fits my needs (close to my full time job, in my price range, upcoming area, good rental rates).  Let me know what you guys think and if you have any tips if you around the area!

Are you investing just for the equity or are you shooting for any cashflow? Not all markets are the same, but it sounds like it doesn't leave too much room for cashflow after you consider the vacancy and expected repairs and Cap Ex.

Great idea to rent the rooms out to have extra cash to start saving for your next property!

Hi Jeff, even though your roommate is your friend, $350/mo for rent is fairly low and may not get you your "free equity."  Regardless, it's good to have a roommate and househack with a friend, so if you think that rent value is fair then way to go.  I househacked and converted my first propert to a rental as well, it's a solid approach so good work.

Just off the cuff, not knowing your salary, it may be difficult to save for another property within a year unless you bring the rent up a bit.

I agree that Phoneixville could be up and coming, but there are a lot of apartments being built there, so there should be a premium on homes close (walking distance) to Bridge St. I am looking in the area now for an investment.

How are you advertising your room and will you charge the same rate to next roommate?

I was more so looking for gaining equity for my first investment, I realized going into this that there would not be much room for cashflow, although there should be some.  I did not charge my friend a typical amount for the area, mainly because he is my friend.  I am helping him with a cheaper place to live and he is helping me pay some bills, splitting utilities and he helps with projects around the house.

Aside from that, my girlfriend will be moving in as well, helping pay for other expenses.

I'm a 2nd year teacher so I am not making a whole lot, but it is enough to pay the bills and save some. I also have a good bit of reserves still, I did not even use a third of what I have for the down payment. I currently have enough for another down payment (for an FHA) for the next house. I started out with the first time home buyer conventional loan (3.5% down), so I plan to switch to FHA owner occupied (3% down) for the next house. Once I move into the next house I will rent out this one and it should be around $1500 per month (that is the free equity I was talking about, not currently). Side question, when looking for financing for the new house, will the finance company be able to look at my current home as income because I plan to rent it out? Or does it need to be currently rented out for it to count?

Also, this house is on the edge of town, close to the hospital.  Certainly still walkable, but it is about a 10 min walk.  In my price range, this was by far the best I could find in about 5 months of search.  The next closest areas were places like Royersford (not a bad area), Spring City (not a bad area), Pottstown (meh), Norristown (meh), etc.  Royersford and Spring City are nice enough areas, but I feel they would be harder to find tenants that Phoenixville.

My friend/girlfriend will most likely be my only roommates in the current house.

Thanks for the responses guys!

Great idea to house hack, glad you found your first investment!  I think you could run into some hurdles for your next place because traditional lenders will look at your debt to income ratio(s), and given that you only put 3.5% down, I'd imagine that might raise some concerns for the lender.  

Perhaps you could use the rent from your roommates to pay off your PMI sooner? That way your margins will improve and your DTI ratios will look a little better.

Jeff,  for your next house, here are is a key tip on what the mortgage company might/will require conditional to your approval for the next place, based on your intent to have the first home to be converted to a rental...I did this exact move earlier this year:

• The first place must generate enough rental income to cover your monthly payments, but they will only count 75% of the rental income towards the payment. For example, say your total mortgage is $1050 (includes principal, interest, taxes and insurance), you must take in $1400 monthly, and prove this with a lease and rent checks. This is the only way to not have this current mortgage count against your debt to income ratio. 

• so once you find your new place to buy, you will have to place a new tenant at market rate ($1400 or more) and receive first month and security deposit and prove the funds have cleared, and show the mortgage company the lease. It's doable, but you just be prepared to place that tenant ASAP at the right price. 

From my experience Lenders want to see rent on two years of tax returns. Taking a loss on your taxes creates the opposite affect and reduces your income used to qualify (so you may want to consider this when writing off your expenses against your rental income). This is what I've experienced here in MA. 

Steven do you have contacts for Lenders that will use use cleared checks and lease docs and not require to see it on the Tax return?

Thanks for the posts everyone! Steven, could you connect me with your lender since you're in the same area as me? I didn't realize that could be an option as well. I'm certainly wanting my next property to have more cash flow, so I'm looking in some cheaper areas as well.
Originally posted by @Jeff Dimmler :
Thanks for the posts everyone! Steven, could you connect me with your lender since you're in the same area as me? I didn't realize that could be an option as well. I'm certainly wanting my next property to have more cash flow, so I'm looking in some cheaper areas as well.

If you're looking for cash flow for your NEXT property, how does that relate to you moving from your current primary?

ie. You'll still have to live somewhere, and I don't really see this one being self-sustaining after just two years.

Cash flow (mortgage paydown) is a very SLOW way to increase your "equity". Three quicker ways are: 1. Paying a LOT less than market value to begin with; 2. Buying properties that have value-adding opportunity (and then adding that value for less than its cost); and/or 3. Buying in markets that are LIKELY to appreciate rapidly! All the best...

Originally posted by @Brent Coombs :
Originally posted by @Jeff Dimmler:
Thanks for the posts everyone! Steven, could you connect me with your lender since you're in the same area as me? I didn't realize that could be an option as well. I'm certainly wanting my next property to have more cash flow, so I'm looking in some cheaper areas as well.

If you're looking for cash flow for your NEXT property, how does that relate to you moving from your current primary?

ie. You'll still have to live somewhere, and I don't really see this one being self-sustaining after just two years.

Cash flow (mortgage paydown) is a very SLOW way to increase your "equity". Three quicker ways are: 1. Paying a LOT less than market value to begin with; 2. Buying properties that have value-adding opportunity (and then adding that value for less than its cost); and/or 3. Buying in markets that are LIKELY to appreciate rapidly! All the best...

I worked with Wendy Williams and Mark Koleda from Prosperity Home Mortgage. They're based in Blue Bell (local to philly suburbs). Jeff, if you mention my referral you can get $500 off of closing costs. 

Mitchell, doesn't look like they serve Massachusetts.

https://phmloans.com/

Best,

Steve

Originally posted by @Ryan Dressel :

Great idea to house hack, glad you found your first investment!  I think you could run into some hurdles for your next place because traditional lenders will look at your debt to income ratio(s), and given that you only put 3.5% down, I'd imagine that might raise some concerns for the lender.  

Perhaps you could use the rent from your roommates to pay off your PMI sooner? That way your margins will improve and your DTI ratios will look a little better.

FYI I am fairly certain you can't "pay off PMI sooner" unless you refinance these days. Prior to June 2013 this may have been the case, nowadays the number I hear from my lender is 11 years of PMI if you put 10% down when you purchased, otherwise the PMI will stick with the loan until it is paid off (refinance or paid full). This doesn't necessarily mean PMI is a bad thing, but certainly something to be avoided if possible. Or purchase knowing that a refinance down the road may be the smart thing to do.

@John Knisely I went with a first time home buyer conventional loan, so I will be able to pay off the PMI sooner. Once I pay off 20% of the loan, the PMI comes off of the loan automatically. I know that with an FHA loan you need to pay off 20% of the loan and refinance to get it off.

@Steven Curran  Thank you for the contacts! I will definitely be getting some more information from them.

@Brent Coombs I have a few options that I am weighing out currently, I could stay in my current home and buy a multifamily investment property after saving for probably about a year.  Or I could do an owner occupied loan in a multifamily home.  At this point, I am not sure which would be easier/more efficient in the long run.

Also, in response to your cash flow statement, 1.  I paid a little under the market value; 2.  The property needed/needs some work and updating that will improve the value (lots of 80s style); and 3.  I think Phoenixville will appreciate a lot, they are still expanding and updating the area and have been for the last 5-10 years.  So I went into this thinking that the property value will increase a good bit over time.

@Jeff Dimmler , my recommendation is: sure, always be weighing up your options, but you don't need to be in a hurry to decide UNTIL/unless you find a Multi that's just too good a deal to pass up (even though you mightn't have saved enough yet to get it with an investment loan).

It sounds a bit like you want to decide, THEN look for your deal? Nah...

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