Real Estate Agent · Glendale, AZ · Member since 2017 · 55 posts · 10 votes
Hello everyone,
My long term goal is to create wealth through real estate. I am getting my real estate license for many personal reasons. Eventually I am going to find properties that I can fix and flip and purchase rental properties for residual income. With that being said, I want to start my real estate path by purchasing my first home.
I am a w2 employee only making 33k a year. I realize, in the market I live in, I can possibly get an fha loan and move into a house. Yet, I don't believe I can afford let's say a 1k monthly mortgage payment. Are there any suggestions out there as far as getting an fha loan to purchase a duplex (through a real agent) rent out one of the units, house hack it, live in it through whatever time I need to according to fha, re-finance (pull money out the house assuming the property has appreciated) and then sell it? I believe I can't rent out the unit if I purchase the house through an fha loan, am I right or wrong on that? Let's have a creative discussion on how I can possibly purchase my first home!
FHA loans do allow you to house hack, no problem there.
With your lower income, it will be tough to qualify for very much on a loan. Make sure you get rid of all other monthly payments and debt first so you can qualify for as much as possible. One thing that could help you get into a multifamily would be to find a property that already has tenants renting in the other units. If they have signed leases in place, most lenders will count 75% of their rent as income for you. That could be the key to getting you enough income to buy a multifamily with FHA.
Make sure to keep plenty of reserve cash for repairs!
You can house hack with roommates based. In the phoenix market you may not find something you want to live in if you are not preapproved for at least 180k. You can get a 4 bedroom house in mesa and rent out 3 bedrooms.
There are some mfh but not sure the numbers will work.
FHA loans do allow you to house hack, no problem there.
With your lower income, it will be tough to qualify for very much on a loan. Make sure you get rid of all other monthly payments and debt first so you can qualify for as much as possible. One thing that could help you get into a multifamily would be to find a property that already has tenants renting in the other units. If they have signed leases in place, most lenders will count 75% of their rent as income for you. That could be the key to getting you enough income to buy a multifamily with FHA.
Make sure to keep plenty of reserve cash for repairs!
Thank you for your response! Correct me if I am wrong but if I were to be pre-approved for an FHA loan, will the banks consider 4 units or less as a residential loan? Also, I believe the current rates are at 3.5% for an FHA loan correct?
Thank you for your response! You are right, it's tough for me to qualify for a loan because I simply don't make enough money compared to the debt I owe.
Now that's creative! I know I could find a property via craigslist, possibly through BP!, or a personal reference but if you don't mind me asking, how would you find a vendor/seller who wants to get rid of his multi family?
@Luis Aguilar, what is your current rent situation? How much are you paying? I think this is critical to giving you the best possible advice.
If you were to purchase, I agree with everything @Stone Jin said. Probably the best viable route for you is buying a small 4 bedroom house in Mesa and renting out 3 rooms. Purchasing multifamily and then renting out the other units is usually going to have worse cashflow and be too expensive purchase-wise for you to afford in the Phx market.
@Luis Aguilar You can certainly buy homes for under 180K in the valley. The question you need to ask yourself is what type of investor do you want to be. Do you want to live in a nice home in a decent part of down for a year and then have a nice SFH as a rental or do you want to deal with tenants that pay $600 a month in a duplex that is 50 years old. The choice is yours my friend.
@Luis Aguilar, I agree with what has been said by @Jake Saliba, @Stone Jin, and,@Doug McVinua. One idea I would like to add to what they are saying is, if you are a single guy, another route would be to buy a house that has a guesthouse in the back and then rent out the main house. Not only should the rent from the main house cover the majority if not all of the rent, so you could live for free, but then when you move you can rent out the guesthouse that you were staying in also and have a Cash flowing duplex.
If possible, it sounds like your best bet would be to invest in a quadplex (4 units) to house hack. Then you will almost certainly be able to pay your monthly payments with 3 units occupied and you occupying the fourth. Best of luck!
You are right, at this point of my life, because of the little amount of money I bring to the table on a monthly basis, purchasing a multifamily might not be the best plan of action. I agree with you guys, at this time I might just be better suited in purchasing a house in Mesa and renting out the 3 rooms. I am a single guy with no kids and technically my current rent situation isn't that much ($300.00). My credit score is 655 and my biggest debt is my student loan at 36k (currently making interest only payments - balloon payment).
Great point. That is really helping me change my paradigm into becoming a real estate investor who (for his first purchase) wants to live in a decent part of town for a year (because FHA rules state the buyer has to live in that house for a year correct?) , use that SFH as a rental or maybe even sell to someone down the line. I am making that decision because I don't want an old duplex that I would possibly require repairs. I know I wouldn't make those repairs, but I wouldn't have enough money in reserve to cover those costs (at this time of my life). Thank for making me think about that!
If I could land my first purchase on that type of deal it would be perfect for me. I am a single guy, no kids and I wouldn't living in the back house at all. My family and I actually just air bnb a house in Ojai, CA. a few weeks ago where the property owner did the exact same thing. Definitely a great way for me to get a cash flowing duplex. Love that idea!!
That train of thought still runs inside me but I believe I need to keep on increasing my credit score, pay off as much debt as I can before I am able to make that type of purchase right? I can probably make that my first type of deal, but I think it just various on what type of deal I can find??
@Luis Aguilar
That may be true, depending on where your credit score stands now. However, loan officers will approve or deny you for your credit score for a duplex an SFH or a quadplex equally. If your credit isn't high enough for a quad, it's not high enough to invest basically. That's not a rule but it's generally true in my experience. Keep in mind that if you find the right loan officer, they can make it happen. You may need someone to co-sign on the loan, use the "authorized user" method, or be creative in various ways to get the deal you want, but it's possible. If you TRY to acquire a loan, you'll find out what you can do to get it. At the very least, talk to as many loan officers as possible and get opinions about your specific situation.
What's your interest rate on your student loans? If it's high, I would say try to pay them down super fast before you get preapproved so that's not over your head financially during the approval process for DTI. Good luck!
If your rent is $300/mo, that's a very strong position to be in. You are also probably paying zero maintenance cost. Are you paying utilities? I don't think you can improve on that situation by much.
Be sure to run the numbers very carefully on any house you're looking at. I strongly suspect that in many scenarios, you will end up out of pocket MORE than $300 a month once you add in taxes, insurance, maintenance, and utilities.
I think in your situation, I would be using the extra savings from your very low rent to pay down debt and build savings. We would really need to know your full financial picture including interest rates to advise properly.
You may want to consider asking here for an alternate viewpoint:
@Luis Aguilar I am in the same boat as you at the moment, lots of student debt and looking to house hack. I live on the other side of the country in Baltimore and have found that there are hardly any affordable multis for me to house hack that are not in rough areas of the city. This has led me down the SFH route. I am in the process and am now pending on a 203k loan. I have focused on one neighborhood of the city that I believe will have a steady rent and is fairly affordable and am direct mailing them religiously! Call around and get pre-approved for an FHA or 203k loan. This will let you know where you stand and then search hard for a deal. Finding the right seller who is motivated that will get you a great deal is key!
I know that several people here are saying to purchasing a 4plex, but I wouldn't suggest it. There is no one size fits all system when it comes to investing, so sometimes a 4plex isn't the right path. Rental markets are different, and the phoenix market favors appreciation, over monthly rents. While it may not be as bad as some markets, even a quad isn't likely to net you much past the 1% mark, and that would be for a run down neighborhood.
A 4plex with your income, and debt isn't likely to happen. At your price point, It would need to be the cheapest 4plex in town type of scenario in the low 200s, and you would be living in the ghetto, and likely end up with 3 sub par tenants that would drive you insane as a first time homeowner and first time landlord. The price point at which you would be able to afford these properties means that average rent would be roughly 5-600 per unit, which attracts low quality tenants, and means that neglected repairs and capex items can quickly eat into any profits that you may think you are getting. In my opinion, the rent to purchase price ratio simply doesn't favor purchasing these items. The cheapest quads have only a roughly 6-8% CAP rate, and in terrible neighborhoods. Dealing with the crime and annoyances that would come with living in these types of neighborhoods just isn't worth it.
Instead I would do as someone else suggested and purchase a decent sized 3-4 bedroom SFR in Mesa, and rent out the other rooms. This is how I got my start in the RE game years ago. I purchased a 3bed home for 165k at 20%, mortgage being $800 and rented out the two upstairs bedrooms for 400 each. I had the best of all worlds, I got to live in a decent community, I got the appreciation rates of the SFR phoenix market, I lived rent free and essentially only paid for utilities, and I got to live and hang out with my friends who I know are going to take care of the place.
If you don't have friends that are interested in moving in, craigslist has an abundance of people looking for a place. While craigslist can be sketchy, you need to screen your tenants just like you would anyone else. The good news is since you are cohabitating the area, you are lawfully allowed to discriminate for any and no reason at all. So be selective and find someone that will be a good fit.
In the long run I think this option would be better financially and better for your mental sanity than buying a cheap quad.
It's counterintuitive for an agent to talk someone out of buying real estate, but that's actually what I would recommend for you. You would be better served focusing on other aspects of your life and financial situation before trying to get into real estate.
1) Leverage your college degree to get a higher paying job
2) Refinance or pay down your student loans. What would happen if you owned an investment property when your student loan payment came due?
3) If your credit score is already high, keep it that way. If it needs work, do everything you can to improve it.
4) Pay off any other non student loan debt you have and don't take on any new debt
Once you've done these 4 things, then come back and re-analyze various real estate strategies. I think you'll find that many more opportunities will be available to you.
@Luis Aguilar I live in the SF Bay Area in a very similar situation, only I have a family of 4 which limits my options a bit. I can't offer much help right now, but I'd be happy to keep in touch on BP and share experiences and ideas as they come. Good luck!
@Luis Aguilar if you don't think you can afford a single family, then why do you think a duplex or larger would be possible? Learn the rules and criteria lenders will use.
FHA will have guidelines for how long you need to live in the property to qualify. You may be able to sell it after a year but that may not be your best option.
That is true, it seems like I just need to speak w/ as many loan officers to actually know what my realistic options are. I was in touch with one last year but at the time my credit score was lower. It's as if, I am just paying little chunks of debt every 2 week paychecks and slowly increasing my credit score.