Looking to take the leap of buying my first property

[Raphael Oliel]

Hi, really excited to have found bigger pockets and begin connecting with others who have been making a living off of real estate or used it as a supplemental source of income. 

My goal is to eventually not have to work a W2 job and have enough of a portfolio to live off of the passive income. I'm currently reading BRRR and looking to get started by either doing this or get my feet wet doing house hacking.

A little bit about me and my current situation:

Age: 31

Annual income: $124k (before taxes), been at my job for 1 year (fully remote 9-6 job)

Personal Savings: $40k (able to put away about $6k a month)

Expenses: $2,700 a month

Living situation: 

- Living in Mom's house and between me and my sister who lives here too,  we pay all of the bills. Mom is retired, the house we live (4bed/2bath) in is fully paid off. Paid $476k in 2012 and the house is worth about $750k now. 

- My father died when I was 17 and he was the bread winner of the house and so my Mom doesn't have much saved up as she used up saving to pay property taxes, and living expenses while I was studying full time for my bachelors. My sister and I are pretty much her retirement plan but at least we live in a decent home that is fully paid off. My mom also owns a condo in Lauderhill Florida that is worth about $150k could probably rent for $1700 a month(also fully paid off, and HOA is only about $400 a month, included in monthly expenses #)

- Now that I am about to save some money I am thinking about getting into real estate investing or at least acquire a property for myself that can be revenue generating. 

- My mom looks to me to make decisions about what we do with our house and the condo we own in Florida even though both properties are in her name. I've been running a potential move to florida to her and she is open to the idea given that property taxes here in Long Island are expensive, about $13k a year.

Below are a few options I have been juggling in my head:

1. Refinance our primary home for 70% assuming a 750k valuation we would get about $525k cash out of the refinance and used that to get started in a BRRR.

2. Leave my mom and sister back home and leave the primary home alone for them to live in, and use an FHA loan to get into a multi-family (duplex or triplex) and house hack for the next few years

3. Sell our primary home in long island and my mom uses the money to 1031 exchange towards a more expensive property in south florida (close to miami or fort lauderdale) ideally a multi family where we can use rental income to pay off the loan we would need to take out to finance the difference. i.e. 750k towards a 1M property, and so 250k loan

Just unsure about the current environment and getting into a BRRR with rates so high. It would be hard to build equity if there is a recession and property values decrease.

Happy to hear your thoughts and I fully appreciate RE veteran advice!

Best,

Raphael

[Raphael Oliel]

Quick update for my post above. I'm not looking to quit my job anytime soon. My goal is to be able to not have a to work a W2 job by the time I'm 40. So spend the next 9 years working full time and developing investing in real estate to a point where I can rely on a portfolio of rentals. 

[Scott Wolf]

@Raphael Oliel, it's great you're looking to improve your situation.  House hacking will probably be the best option here, to help reduce your monthly outflows. Since your job is fully remote, finding a lower-cost area to live in may also be helpful. 

Your mom selling her house isn't eligible for a 1031 exchange, but she will be able to gain $250k tax-free from the sale, which will give her a nice chunk of change to work with.  It's Section 121 of the IRS code.

Good luck and always happy to chat!

[Jamaal Gill]

Hey @raphael oliel,

To answer your question:

1. Refinance interest rates are kind of always higher than what you would get when purchasing a home. It's important you understand how much interest rates affect your monthly payment and consequently, cash flow. Do the numbers before going this route. It would suck to have to fall behind on payments on the home you were raised in.

2. This sounds like your best option to me. You can use your savings to do an FHA loan on a multi-family property. I wish we (my wife and I) had done this looking back even though at the time we thought the price we bought our Airbnb for was high at the time. Hindsight is 20/20 but we made a good decision nonetheless.

3. This sounds like more of a question of comfortability for Mom. This really depends on if she wants to leave what she's grown accustomed to over the span of your life (i imagine) living in one area and relocating to another where ease of travel is a bit different. Seasons are non-existent and friends that have been made may not be as close as they once were. 6% on 250k is better than 6% on 525k (assuming interest rates are the same for purchase & refinance but unlikely).

If you do plan on making the move, I recommend an option 4.

4. Move out and rent your home in Long Island. Go into multi-family and do the short term rental route to accomodate for the higher interest rates in the short term until rates get better (fingers crossed). You can use the rental contract from that long island home to help finance a pretty good multi-family purchase. The more east this multi family is and closer to i95 you are (so east of i95 near the beach), the better in my opinion. I'd shoot for at least 4 units so you can have the flexibility of having your mom and sister in their own space for your sanity. However, you're not going to find cheap multifamilies. Expect to pay at least 1 mil for your property. The entire south eastern coast of Florida is ripe for gentrification and equity build as the WFH culture begins to get more engrained in American work and people move down to Florida. 

Don't let the interest rates scare you. As long as you can cover that mortgage payment and make a little more (even $1), it's a win in my book. Long-term equity will stabilize and grow but in the short term we're going to see a bit of fluctuation because of the interest rate increases the Feds are doing. 

I wouldn't recommend long term rentals unless you're doing luxury multi-family properties catered to northerners because the average floridian can't afford a $2,500 rent but you can generate that via short term rentals. 

[Malgorzata Sadowska]

Do your own FHA house hack for at least a duplex (ideally a 4plex).

[Julio Gonzalez]

Hi Raphael, welcome to BiggerPockets!

[Raphael Oliel]

Scott, Jamaal, and Malgorzata,

You have no idea how valuable your responses are. Thank you so much for taking the time to read my situation and provide your input. I think I am going to down the route of FHA into a multi-family. Going to save as much as I can the next couple of months and look to at least get a triplex, ideally a quadplex.

Going to speak to lenders to see what I can get pre-quali/pre-approval for

In terms of specific locations in the area I'll be looking at:

- Little Havana, Allapattah, Little Haiti, Brownsville, West little river, Doral, Fontainebleu, Tamiami

@Jamaal Gill

- My mom actually prefers moving to Florida vs staying in New York (she wants the warmer weather haha) you brought up an interesting option which hadn't crossed my mind to rent out the LI house. I will consider it, thank you.

[Raymond J. Rodrigues]

@Raphael Oliel, if you're looking to be in the areas that you mentioned above, definitely reach out to @Malgorzata Sadowska. She can be of a great value to you on your search in So Flo!