Hey guys my name is Theo Kim and I'm a first timer looking to invest!
I've been studying different strategies for the past couple years with seminars, books, podcasts, CFRI gatherings, and of course reading BP material and I made it a goal to get out of analysis paralysis and pull the trigger before this year is over.
I am a bit experienced renovating a couple single family homes nonprofessionally, so on the investment side I want to start semi-big keeping myself busy, focusing on multi-family.
I have a measly savings of $40k to play with and I want to start off with a very affordable triplex or quad to rent and hold with light reno. My key area is the Winter Garden-Kissimmee-Davenport triangle in Florida (basically within 30 mins from Walt Disney World) and I also have a special place for the Space Coast, but of course a cashflow property is a cashflow property. My funding strategy is via FHA loan although I'm guessing I can't get a fixer-upper because of the safety regulations of FHA's? (Please share your opinions on this if you have info) I don't own a home so I can make it my primary residence no problem. I was thinking of Airbnb-ing my rooms out if I couldn't legally have full home tenants in my primary residence.
If FHAs does not work, I may try to jump in head first and BRRRR, which is my next goal. This will open other forms of financing like Hard Money loans and partner investors. Again, please if you have experience with this, I am looking for insight on this scenario.
The long term goal:
It may help to know my initial goals which is to get a multi-family rental, let it invest in itself plus the small $1k/mo savings from my 9-5 work, and repeat until I can upgrade. On the side, I am planning on hustling hard and Wholesaling on the side to take over my 9-5 job and then transition that to capital building. In the end, I want to BRRRR hardcore.
So if anyone has any insight on creative finance that you think could work for my strategy (does it seem like I'm doing this right?), multi-family examples that could fit the numbers, and whatever lessons you care to share please do!
Sorry for the long post, but thanks in advance and hope to talk and meet with the BP fans!
Hey @Theodor Kim !
First off, congrats on your personal journey with REI. I'm semi new to REI investing and started reading and listening to Bigger pockets 2017, didn't pull the trigger until April 2019 to get my first SFH. I'm currently closing on a duplex that I will rehab and get rented out too in Gainesville FL.
Since your goal is to have a multi family, acquiring a triplex or fourplex, an FHA loan with just 3.5% down will help a lot. You can even investigate the 203K loan within it to help with your rehab and wrap it in your loan, if the numbers work for you. Just keep in mind the additional Private mortgage insurance, you'd need to refinance your loan in order to get the PMI out. This is also beneficial if you needed to do some light rehab anyway. You'd get chance at another appraisal and hopefully some loan pay down from your tenants that help reach 20% equity to get that PMI out.
I know some banks, depending on your credit score, will offer their version of the FHA loan requiring 3% down. Might be advantageous for you if you don't want to refinance your loan since there product allows for the PMI to drop once you hit 20% equity. These are great options for someone to get a primary residence loan to afford a multifamily house. Just make sure you crunch the numbers and add all the fees. Remember you must pay fees (closing costs) and some points, depending on your bank, when you refinance. Just keep that I mind. My lender told me to calculate 4-5% of asking price for your home for closing costs.
I would also figure out my target price ranges for these SFHs or MFHs. Then figure out the rent that will come in. Once your have those numbers it should be easier filtering through sites like Zillow. You can also find a property manager and ask them how much they would rent those units for, to get accurate numbers.
Hopefully this helps! Sometimes you just need to find a decent deal first and work it through before things start clicking. Use it as training wheels that will prepare you for the next one.
Theo, I agree with Chris. I would definitely look into the FHA 203K loans. I don't have experience with this type of loan but if I was doing a house hack or live and flip I would definitely consider this.
The pros are that you get a low downpayment and upfront construction costs. I believe for streamlined 203K loans you can get up to 25,000-30,000 relatively easy. If you want more than $30,000 in construction costs, from what I've heard it's definitely possible but you need to be prepared to explain what these costs are for (mainly explain that your costs are for value add).
The cons are that the FHA loans have a higher interest rate than normal loans and sometime do not have the automatic drop of PMI as other lenders do (as Chris mentioned). It sounds like you're looking to start off with a househack... if you do wind up using an FHA product I would add in the cost to re-finance after you get above 5% equity or the construction is done.
I would also be cautious that for the FHA 203K loans, you need to have a licensed contractor do the work... you might want to factor this into your analysis as well.
Sounds like your on the right track though! I'm also starting to look at Orlando / Tampa market so let me know if you want a second set of eyes on anything.
Like Chris & Ryan mentioned, the FHA 203k loan is a viable option for you. Whether this financing option is offered with a lender is one thing, it's yet another if the individual loan office you use is familiar with the process. Up here in Gainesville, I've had a couple of clients use the 203k product. It was not so intimidating as the lender they used walked us through the process. The contractors used have to be on the 203k approved list AND so does the appraiser that gets the appraisal assignment. We got lucky as both the contractor & the appraiser had worked on a couple of transactions already,-so they were on the same page.
The loan officer on that transaction let me know there is also a conventional renovation loan available. He made it sound like it might be a more simple process than the 203k, but I'm not sure of the down payment requirement. It may be 5% down or higher.
Also, there is a fellow Bigger Pockets member down your way that likely can help you find what you are looking. He is an experienced investor. Look up Patrick Hancock.
Chris, Ryan, and Shawn: thanks so much for the info, especially about the 203k loan! That's a big eye opener as it may allow me to broaden my search for Multis. I will definitely look it up and do some more research to make sure the fine print works with my strategy. Lots of good stuff! Makes me feel much better about the FHA route.
@Theodor Kim Hi Theodor, welcome to Bigger Pockets! Bigger Pockets is a great start toward getting deals done correctly and reaching out to seasoned real estate investors. Congratulations. I wish you the best.
@Sonia Captain thank you so much! I've been lurking around during my research phase, but so glad to be posting and talking to real people who have skin in the game!
Welcome to BP @Theodor Kim ! It's good to see you have a plan laid out and a decent amount of money saved up as many believe in the promise of no money down, no experience which usually means no chance. With 40k and a 9-5 you have options. As others have said you'll want to determine your price point and from there you'll know what you're looking at for a down payment and how far 40k will take you. Keep us posted on your journey!
@Odie Ayaga Awesome. Thanks alot! I'll keep hanging around and keep posting updates as I run into new things to learn.
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