How to do your first “not live in” deal

Question

Hello! My name is Nate, and I’m on my 3rd deal as of now. However, we (wife and two kids) own this 3rd deal and want to keep it as our permanent home. We have lived in our other two deals, made money on both, but I have no idea how to do another deal safely without living in it. We have 40k in cash and 100k equity in our current residence, but we don’t want a larger house payment than what we have already. How do we stay in the real estate game while minimizing our risks?

Nate Williams · Answer

Thank you for the reply, Jay. The information on the equity is very helpful and informative! I have not used an FHA loan yet. Would that be a viable option?

Jay Hurst · Answer

@Nate Williams   100k in equity is not typically enough to do much damage with as you typically have to (and want to) keep at least 20% equity in the house. So if the house is worth 300k and you owe 200k then most you could pull out would be 40k (minus costs) and it would be a second mortgage most likely which would be expensive. 7.5-9.5% likely.

But, you can put as little as 15% down for a conventional loan on a single family. So, that would allow you to buy 200-250k. of course, it is hard to find cash flowing properties with 15% down, but most assume you have to put down at least 20% which is not the case.

Gernide J Antoine · Answer

and also like what I do

• Utilize as STRs: You furnish and list these properties as short-term rentals (STRs) on platforms like Booking.com or Airbnb.
• Generate Cash Flow: The higher rental income from STRs, compared to long-term rentals, allows you to cover your mortgage/lease payments, generate positive cash flow, and potentially have funds left over for further investments.
• Positive Cash Flow: STRs often generate higher rental income than long-term rentals, allowing you to cover your costs and potentially profit.Tax Advantages: You can often deduct expenses related to your STR business, such as mortgage interest, property taxes, and maintenance costs.🙂

Hope this help good luck on your investment journey

Gernide J Antoine · Answer

Hi Nate,
Congrats on your third deal and finding your permanent home! It's awesome that you're looking to stay in the real estate game while minimizing risk. Here's a breakdown of strategies you can consider:
1. House Hacking with a Twist

Rent out rooms: Even though you're living in the property, you can still generate income by renting out spare bedrooms. This can help offset your mortgage payment and potentially even create positive cash flow.   



 




Consider an accessory dwelling unit (ADU): If your property allows for it, building an ADU (like a small apartment or guest house) can provide a separate rental unit while you live in the main house.

2. Invest in a Rental Property

Use your equity: You could leverage the equity in your current home to purchase a rental property. With $100k in equity, you might be able to secure financing for a smaller rental property without significantly increasing your housing payment.   



 




Look for properties with positive cash flow: Focus on finding properties where the rental income covers the mortgage payment, taxes, insurance, and other expenses, leaving you with positive cash flow each month.

3. Explore Wholesaling

No need to own or live in the property: Wholesaling involves finding deeply discounted properties and assigning the contract to another buyer for a fee. You don't need to use your own capital or credit.
Lower risk: Since you're not buying the property yourself, you're not taking on the risks associated with ownership, like vacancies or repairs.

4. Partner with Other Investors

Pool resources: Partnering with other investors allows you to combine your capital and expertise to invest in larger or more complex deals that you might not be able to do on your own.   



 




Shared risk: By sharing the investment, you also share the risk.

5. Focus on Education and Networking

Build your knowledge: Continue learning about different real estate investing strategies and market trends to make informed decisions.
Connect with other investors: Network with experienced investors in your area to gain insights and potentially find partnership opportunities.   



 





Risk Mitigation Strategies

Thorough due diligence: Always conduct thorough due diligence on any property before investing, including inspections, appraisals, and market analysis.   



 




Conservative financing: Avoid over-leveraging yourself. Opt for loan terms and interest rates that you can comfortably manage.
Build reserves: Set aside cash reserves to cover unexpected expenses, like vacancies or repairs.
Consult with professionals: Seek advice from real estate agents, lenders, attorneys, and tax professionals to ensure you're making informed decisions.

Remember, there's no one-size-fits-all answer. The best approach for you will depend on your specific financial situation, risk tolerance, and investment goals.
I hope this helps! Feel free to reach out if you have any other questions.
 
Best
Gernide

Hi Nate,

Congrats on your third deal and finding your permanent home! It's awesome that you're looking to stay in the real estate game while minimizing risk. Here's a breakdown of strategies you can consider:

1. House Hacking with a Twist

• Rent out rooms: Even though you're living in the property, you can still generate income by renting out spare bedrooms. This can help offset your mortgage payment and potentially even create positive cash flow.   



 
• Consider an accessory dwelling unit (ADU): If your property allows for it, building an ADU (like a small apartment or guest house) can provide a separate rental unit while you live in the main house.

2. Invest in a Rental Property

• Use your equity: You could leverage the equity in your current home to purchase a rental property. With $100k in equity, you might be able to secure financing for a smaller rental property without significantly increasing your housing payment.   



 
• Look for properties with positive cash flow: Focus on finding properties where the rental income covers the mortgage payment, taxes, insurance, and other expenses, leaving you with positive cash flow each month.

3. Explore Wholesaling

• No need to own or live in the property: Wholesaling involves finding deeply discounted properties and assigning the contract to another buyer for a fee. You don't need to use your own capital or credit.
• Lower risk: Since you're not buying the property yourself, you're not taking on the risks associated with ownership, like vacancies or repairs.

4. Partner with Other Investors

• Pool resources: Partnering with other investors allows you to combine your capital and expertise to invest in larger or more complex deals that you might not be able to do on your own.   



 
• Shared risk: By sharing the investment, you also share the risk.

5. Focus on Education and Networking

• Build your knowledge: Continue learning about different real estate investing strategies and market trends to make informed decisions.
• Connect with other investors: Network with experienced investors in your area to gain insights and potentially find partnership opportunities.

Risk Mitigation Strategies

• Thorough due diligence: Always conduct thorough due diligence on any property before investing, including inspections, appraisals, and market analysis.   



 
• Conservative financing: Avoid over-leveraging yourself. Opt for loan terms and interest rates that you can comfortably manage.
• Build reserves: Set aside cash reserves to cover unexpected expenses, like vacancies or repairs.
• Consult with professionals: Seek advice from real estate agents, lenders, attorneys, and tax professionals to ensure you're making informed decisions.

Remember, there's no one-size-fits-all answer. The best approach for you will depend on your specific financial situation, risk tolerance, and investment goals.

I hope this helps! Feel free to reach out if you have any other questions.

Best

Gernide