I’m Buying My First House!

[Desreal Shorts]

Ive spent my entire time in the military consuming book after book on the topic of financial education and real estate. Fast forward, my contract has ended. My finances are better than they have ever been, my only debt is student loans, and I have both a short term saving and emergency fund. On top of that I have managed to put away enough money for a decent down payment. 

So it sounds like I am ready to rock n roll right?

I thought so to. I am in Detroit, Mi and my plan is simple. I would like to do a house hack. I need a place to live and I would like some help in paying for it. I recognize there are a few options at my disposal. I could get a traditional loan, there seems to be first time homebuyer loans that offer lower down payments, and there is also the VA loan which I qualify for which is 0% down payment.

What I am considering is looking into a first time homebuyer loan with a lower down payment since I have the money saved up and then I can use my VA loan on a different property. I figured if I use my VA loan first then I will not be able to take advantage of the first time home buyer benefits later.

I know that many of these loans require you to live in the home for at least a year, which I believe is a good time frame because it should allow me to build reserves so that I can repeat the process the next year, move out and start building my rental portfolio. 

It sounds like I think I know what I am talking about right? Well, that is until it comes time to take real action.

Here’s probably where my problem comes in at: The first person I reached out to was a friend of my father’s  who happens to be a broker. Now he has been in the industry for over 20 years so I assume he knows what he is doing. The problem is, I do not know what he is doing. I am not really sure what the role a broker or agent is actually supposed to play in this process but I do not feel as though I am not being educated the way a consumer should be, given this is an entirely new process to me. For example, do I look for my own homes? Is he going to send me any to look at? When I see something I like do I call him or contact the person on zillow?  Am I supposed to be chasing him down this much? Is it weird to think that he should be reaching out to me with more information? Do I write my own offer? Are we supposed to have a contract? Once I am pre-approved shouldn’t we be moving faster?

I see houses that I like, that I would love to go out and see, that I would probably want to buy. They look great as a starter. Some have even been renovated and is still below my price point, so how do I go look at it? I don’t think I can just go up to the house by myself, and given the current atmosphere, as a black woman I also do not believe that is a good idea. 

I would like some insight on how the process of buying a house and working with a broker is supposed to look like. What are the steps as a buyer, should I be taking to make my broker/agents job easier and what should I be expecting from them?

I am also currently enrolled in a real estate class to obtain my license. I want to be sure that I can provide the best service possible for my clients so that their journey is a lot less stressful than what mine has been. I welcome and encourage any feedback, tips, tricks or even just words of encouragement because this is just the very first step on my very long path. 

[Tim Herman]

@Desreal Shorts a quick tutorial. I'm not a business major. I divide them into hard costs and soft costs. Hard costs are costs that are known. Taxes, insurance,principal and interest and property management. Sometimes on a multi utilities and grounds maintenance will be the landlords cost, Soft costs are costs sometimes in the future. Vacancy, Repairs, and Capex.

Vacancy, you can call a local PM for your area. But you need to understand the number. Example is 2% vacancy. 2/100=1/50. That is your tenants staying an average of 50 months before they move out. I use 8% for evaluation purposes or 1 turnover per year, For those landlords that used 2% and aren't collecting rents for 6 months they have to collect rent for 300 months before turnover. 6/300=.02 or 2%.

 Repairs are things like clogged toilet or leaky faucet or appliance repair. My repairs are usually $150 per call. I like to use a minimum of $50 per month. This leaves me enough cushion to repaint between tenants and do a service call per year. On a percentage analysis I use 5%.

Capex the replacing of things that wear out. My budget includes roof 25 year life span, floors 10 year life span, appliances and hot water heater 12 year life span, hvac 20 year life span, bath and kitchen remodel 20 year life span. It's best to use an approximate cost for your particular building you a re looking. Assume 1000 sf of flooring in a house. My area it is $6 sf to replace. $6000/10 year life span/12 months in a year=$50 per month for that 1 item. I use a minimum of 10%.

There are free seminars put on BP, The next one is on the 17th. There will be a pitch to sign up for pro which gives you access to the BP calculators and leases that are good in all 50 states. Right now you ca use the calculators for 5 times. There are spreadsheets in the files section if you use them.

If I was starting over I would house hack a small multi 2-4 units. You can get up to 10 mortgages with little down payment<5%. The only thing you will need to live in for a year. End of 10 years you will have 20-40 cash flowing units.

For quick analysis purposes(I know some people don't like rules of thumb) is the 1% rule. Monthly rent divided by 1%. So a property that rents for $1000 per month=$1000/.01=$100000 max purchase price. This gives you the best chance to cash flow a property. Good luck on your investing career.