What’s your best piece of advice for a first time home buyer?

Question

Looking at finally purchasing my first home. I want to live in it as well so my plan is to house hack and rent out the top. Is their anything I should keep in mind? I plan on buying another house ASAP, do I need to live in for an entire year? Any advice would be appreciated thankyou.

Account Closed · Answer

The reason you put more money down on a house vs. the least amount possible is because you want to create a safety net so when bills start filling your mailbox you don't get inundated with with monthly payments you can't afford to pay. The problem is; we don't live in an ideal world where everything goes a planned. So, when you buy a house or houses with the minimum down and the tenant from hell thrashes your house and doesn't pay rent for 9 months then you will need $9,000 to $15,000 to bail yourself out for the mortgage payments, attorney fees and putting your house back together. More down payment = more cashflow to cover the disasters we pray to avoid.

MURPHY'S LAW - https://www.mindtools.com/page...

In its simplest form, Murphy's Law states: If anything can go wrong, it will. However, as with many successful business theories, the original law has been extended over time to cover specialist areas, several of which are given below:

• Project Planning: If anything can go wrong, it will. Usually at the most inopportune time.
• Performance Management: If someone can get it wrong, they will.
• Risk Assessment: If several things can go wrong, the one you would LEAST like to happen will occur.
• Practical creativity: If you can think of four ways that something can go wrong, it will go wrong in a fifth way.

The number one most-important thing when investing is spending a massive amount of time researching and thinking about THE RISKS because it is the risks you don't consider that destroy your entire business.

When you come into my office to present me with some crazy notion you have to make money the very first words I want to hear from your mouth is what the risks are. I personally know three people who owned apartment buildings and they lost them due to COVID's rent moratoriums because not one tenant paid their rent. Who knew about that risk before COVID? Who was prepared for something like COVID when something like COVID never happened before in our lifetime? How many investors are thinking a little differently about something similar to COVID happening again.

Real estate investors go bankrupt for many things that they think will never happen like a train crashes at the bottom of a hill and destroys an entire neighborhood and nobody no longer want to live anywhere near the bottom of the hill. In fact, after the train crashed there was two major natural gas pipeline explosions that caused even more major damage to several properties.

Every post asking questions should ask about the risks. Everyone knows when you put less money down you can buy more properties. What are the risks when putting less money down. The risks are; the tenant from hell at one of your properties can bring your real estate empire crashing down like a set of dominoes because you will be strapped for cash when Murphy's law nails you. You will end up hating the real estate business, hate tenants with a passion and wonder why you ever used your hard-earned money to house other people. Buy with the least amount down, buy out-of-your area, let management companies make your decisions and control your money, listen to so-called experts when it is not their money being risked and failure is an expectation and not the exception.

Here are a few risks and reasons you don't want to be financed to the hilt with the least amount of cashflow.

You have the best tenant in the world and he wants to stay in your home 30 years to pay off your mortgage and then another 50 years. Very common risk! Your perfect tenant gets liver cancer, loses his job and no longer pays his rent. You tell this poor soul he can't live in your unit for free and you hire an attorney to evict him, but the judge refuses to move your tenant onto the sidewalk because your tenant has  only 3 to 6 months more to live. I had that happen no less than 3 times.

There is a very small fire in your rental unit, but the smoke made the unit uninhabitable. Your insurance company wants forensic testing to prove their was no fraud or arson and they take their sweet time. Things get even worse. You are not collecting rent to pay your mortgage, your insurance company is up in outer space in regards to whether or not they will cover your claim, you have water damage caused by the fire department, mold to deal with and now the city inspector want you to hire a company to deal with asbestos containing materials. You are not in bad shape, yet. You have no cash and the city puts a big red sign on your property saying, "DANGER - HAZARDOUS CONDITIONS - KEEP OUT".

Do you remember how excited you was when getting your loan and your broker and loan agents were so sweet. Well...it is very strange how you now see the other face these same people have. You begin to wonder why your mortgage agents were so nice before and why they are acting so differently when they tell you your property is going into foreclosure so quickly.

Too many people say, "cashflow is king" and investors still buy properties with super low cashflow. I disagree with the, "cashflow is king" because you make nothing with cashflow compared to appreciation. Here are a simple things that are an expectation that will wipe out all the cashflow you earn for one or more years.

Your tenant thrashes your house and doesn't pay the rent for the last month. My cost to clean, paint and make repairs to a 3-bedroom home when a tenant moves out is a very minimum of $6,000 and I personally do the work with two employees. Some homes cost $8,000 to $10,000 and one home in Idaho cost me $18,000 because the tenant destroyed every plumbing fixture, kitchen cabinets, stove, refrigerator, granite counter tops and it took several days to trim trees, etc.

So, we lose 1 month of unpaid rent $2300 + $8,000 to put the house back together + 30 days to complete the repairs + 30 days to re-rent the house $4600 for loss rent + your tenant owe the utility companies $800 = $15,700 and this is if you are lucky and can do the work yourself. Many times, when we are at these rentals we realize we need to paint the exterior, or we need a new roof, or we need to trim or cut down trees, or we find broken sewer and drain pipes and need to install new water and drain pipes that cost thousands of dollars.

Cameron Hunter · Answer

@Chase Novotny If you finance the house hack with a conventional owner occupant loan or a government backed loan like an FHA you’ll be considered an owner occupant and be required to live in that property for at least a year. You can still purchase the second property before you’ve lived in the first for 12 months but you’ll have to still live in the first and just use the second as a rental/flip/whatever other strategy you want to use.

BP’s own Craig Curelop wrote a book called “The House Hacking Strategy” that has a ton of super good info in it which might help you out.

Hope that helps man!

Theresa Harris · Answer

While I'm in Canada, I don't know if you can get a second  mortgage with 5% down if you have a current mortgage with the same terms.  I found a bit of info online that says you might be able to.  CMHC insurance is pricey, so if you can do 20% down you save yourself at least that amount if not more by avoiding it.

When buying, remember this is not your forever home, it is a rental.  You want it to be solid and in good condition (or have the money to make it that way), but it may not be quite to your taste or have all the bells and whistles you want.  Run the numbers to make sure it will pay for itself and then some.  When you aren't living there, there will be yard work to do-who is responsible for cutting the grass and shoveling the sidewalks/driveway?  You may want to hire someone to do those in which case factor those costs into the rent AND mention it in the ad when renting as that is a perk for the tenants.

Get a 25 or 30 year mortgage if possible. This will lower your payments.  Check the property taxes and find out utility costs.  I don't know where you are, but in some they can add up.  Find out if there are any extra fees (eg BC has a property transfer tax that will add a few thousand dollars to your purchase).

Chase Novotny · Answer

@Bradley Dosch

Thankyou! Putting as little down as possible is definitely part of my plan since why would I put down more when someone else will be paying off my mortgage, that’s my perspective at least. I’ll definitely have to write down my goals and read some more books.

Stephen Cucc · Answer

@Bradley Dosch

WAIT...

Bradley Dosch · Answer

Hey Chase, super cool! My advice would be to put as little down as you can and also to get clear on what your goals are. Figure out what you enjoy doing, the rest will fall into place. Owner occupant guidelines say you need to "intend" to live there for a year. I've heard of people moving onto the next house hack in six months. This is a good question for a lender.

Chase Novotny · Answer

@Cameron Hunter

Thankyou! I guess I should have mentioned I’m in Canada, I’m not sure if it’s similar or not but I’ll definitely be finding this book.

Chris Pasternak · Answer

Anything to keep in mind?  Be the tortoise not the hare.  You're so excited so excited so excited you're finally able to buy a house and you're already planning on buying the second.  How did you know to ask the question do I need to live in the house for a year? Of course you do because you're probably going minimum down payment which puts you in an owner occupant loan.  Doing otherwise is called fraud.  Relax take a deep breath, maybe a few.  There will always be another house to buy.