Nashville, TN · Member since 2017 · 7 posts · 2 votes
hi guys new to BP and real estate investing as a whole. Been looking at a few strategies and think flipping suits me best! I'm lookin to get in the field this summer! By that time i will have an upper 600 credit score, 10k cash reserve, and still working my 9-5, I'm also a first time home buyer. Thoughts on the best possible strategy?
Cleveland, OH · Member since 2017 · 161 posts · 38 votes
9y
Basically, the first step is learning. Once you feel comfortable,it is time to get pre approved. The bank won't give you investment money man.. not right away. Not in that scenario.. I would recommend this... Find a property below market value. You should buy at most 80% LTV. (loan to value) So if a house is worth 100k, you should pay 80k. Take out an owner occupant loan. You can put down 3.5% through an FHA loan, assuming the property is in good condition. Over the course of a year or so, fix the place up. You make money when you buy. Be sure to capture equity the moment you buy it. Everything else will be a bonus.
Cleveland, OH · Member since 2017 · 161 posts · 38 votes
9y
Hey Bruce! It is great that you want to get into Real Estate. I personally like Rental Properties.
Have you got pre-approved? 10k reserves... is that for a down payment and rehab? I will let you know now, getting approved for a rehab property is going to be next to impossible. FHA will not have it. Especially because you are a first time home buyer. If you have decent income, a good debt to income ratio, and 2 years of work and multiple lines of credit, then It could be possible.
Cleveland, OH · Member since 2017 · 161 posts · 38 votes
9y
Basically, the first step is learning. Once you feel comfortable,it is time to get pre approved. The bank won't give you investment money man.. not right away. Not in that scenario.. I would recommend this... Find a property below market value. You should buy at most 80% LTV. (loan to value) So if a house is worth 100k, you should pay 80k. Take out an owner occupant loan. You can put down 3.5% through an FHA loan, assuming the property is in good condition. Over the course of a year or so, fix the place up. You make money when you buy. Be sure to capture equity the moment you buy it. Everything else will be a bonus.
Nashville, TN · Member since 2017 · 7 posts · 2 votes
9y
hey Josh thanks for replying! So my next step would be hunting down a property below market value by any means necassary, how do I verify it's below market value? do I hire an inspector and an appraiser to make sure it's a good deal? I will defintely be going the FHA loan owner occupant 3.5% down payment route
Real Estate Agent · Grand Junction, CO · Member since 2015 · 1k+ posts · 736 votes
9y
@Bruce Dailey Jr@Joshua Hollandsworth isn't entirely correct. You can buy a "fixer" with an FHA 203K loan (weird name - not an amount) Two of my children have done this and then their flipper parents (me!) have helped them get the job done. $10K will get you up to about a $200,000 dollar loan (5% down) if you qualify for the payments. So, find a house or multi-family (up to 4 units - which would be super cool!). Let's say the property is $150,000. You write an offer for $150,000 but state that the appraisal must come in at $200,000. You provide the lender with a list of items that will be done to the property to make it worth $200K. These can be new appliances, heating system, flooring, general repairs, etc. Your budget for the work is $50,000. The lender will require some of the work to be done by licensed experts (unless you have the verifiable expertise). They will provide a few draws to pay for the work. You have 6 months to get it done. And then you have a nice 30 year mortgage on a fixed up place. Hopefully you have created some extra equity and if you bought a duplex or something you have also created an income stream. Win, win, win -
Cleveland, OH · Member since 2017 · 161 posts · 38 votes
9y
@Bruce Dailey Jr I am aware of this method listed above^^ I didn't say there weren't options. In your situation this is unlikely. You will be biting off more than you can chew. If you don't know how to do the numbers and you don't have "flipper parents" to help you out, you may run in to some stressful situations. I was just trying to keep it simple! I think in your situation, a 3.5% down 30 year FHA loan would suit you perfectly. If you would like to check out a 203k loan, by all means, be my guest! There is no right or wrong answer friend.
Cleveland, OH · Member since 2017 · 161 posts · 38 votes
9y
For example, In my area, to get a BALLPARK value, I would type in
-Cuyahoga County Auditor
Then go to the website. Then I can click on "Real Estate Services" or something like that. Type in the property address, and see the tax history and see what The home was last appraised at. (Value) Good luck!(:
Sherman, TX · Member since 2017 · 30 posts · 10 votes
9y
@Teri Feeney Styers, when you say "state that the property must be valued at 50,000 over purchase price", are you saying state that in the contract with the seller? Is this some type of contingency? How do you go through the process of getting an appraisal before renovations? Does the bank take the word of the contractor/appraiser, based on the list of upgrades you plan/they suggest?
Also, how do you keep the seller happy when the appraisal is 50k more than the selling price?
I like what you are saying, but would love some details!
Real Estate Agent · Grand Junction, CO · Member since 2015 · 1k+ posts · 736 votes
9y
Great questions @Spencer Brett. A good lender can help you with this better than me - but here goes:
Most contracts have a place for a purchase price (the amount you pay the seller) and then an appraisal price (the amount you borrow from the bank). This is where you write in the two different amounts. You apply for an FHA 203K mortgage and generally have to use a G.C. that is on the lenders "list". (I have successfully had a G.C. I liked added to the official list - a little paperwork for the G.C. - but then they are on the list for future clients too). At the time you write the contract you need to have a general idea of the scope of work you want done so that you know how much money you will need. After you place the home under contract then you and the assigned G.C. come up with a detailed, formal bid. You can be allowed to do some of the lesser things - like choosing the appliances and carpet and then hiring the carpet layer - maybe even painting or fencing, but FHA wants to know that big stuff is being done by licensed professionals: major plumbing, electrical, roof replacements, that sort of thing. Once the scope of work is figured out and priced then you give it to the lender who hires an appraiser. The appraiser looks at the price you are paying for the house and envisions the house with the improvements you have listed and then assigns an ARV. Hopefully the final ARV appraisal is equal to or greater than the amount you want to borrow (my son and daughter both gained equity). All of this is done during the contract process. You don't actually close on the property until that has been completed. So, you still have "outs" if it isn't coming together.
Lender · Stuart, FL · Member since 2017 · 112 posts · 37 votes
9y
@Bruce Dailey Jr@Spencer Brett Yes FHA 203K is a great program for building equity by finding a home that you can create the value in. It also brings in options that may not have been on the table should you not have the cash for needed repairs. It is more work but if will pay off for the right property.
Investor · Hillsboro, OR · Member since 2016 · 304 posts · 153 votes
9y
It sounds like you need to niche down a bit. Pick a neighborhood and study it. For example : a neighborhood with lots of rentals next to a college, a first time buyer / working class / basic neighborhood ( many folks think this is #1), Upscale or Executive neighborhoods. You need to start going to Open Houses. Keep the flyers. In a month or two look up what they sold for. ( County tax records, a realtor might help you, zillow etc) Everything flows from what the property would sell for after it was fixed up. ( ARV ) You need to know that number first. Let's say that you pick a neighborhood of 1970's ranch style houses. What were the highest prices and Why ??? Remodeled kitchen ? A pool ? What were the lowest prices and why ? Ugly ? Traffic Noises ? What do most of the houses sell for ? Don't put yourself in a position where you have to get top dollar to make a profit. You want to make a profit if you sell at the average price. If you sell over average , that's just icing on the cake.
Ex: A nice fixed up house in your target neighborhood is 200k. As a rule of thumb you want to buy for 70% of the 200k. But this is just a rule of thumb. Look up the Flipping Calculator on this site. Remember your costs are for repairs and expenses like : points on loan origination, closing costs to title company, monthly payments, utilities, 6% of sales price to realtor, closing costs and sell. Let's say you find a house at 100k. OMG! You are going to make 100k !!!!!! No, you are not. Selling at 200k gets you the following expenses : 12k to realtor, closing costs vary by state...maybe $1,500, 6 mos payments and monthly utilities and insurance ....8k, paying back the points on your loan 2k. This totals just over 20k. OMG! You made 80k ! Oops, forgot about the costs to fix it up .... that was another 30k. OMG! You made 50k. Yep. Celebrate. Now, imagine that you overpayed for the property and bought it at 130k. That difference of 30k comes out of your profit. You made 20k. And, Uncle Sam wants his cut.
I hope this is helpful. I want to encourage you. I don't want you to lose money. A key to being an investor that makes money is knowing what Not to Buy. It's okay to pass. You don't have to buy every ugly house. Personally, I'd rather flip one or two houses a year with a 30k - 50k profit each then work my butt off on a bunch of deals that pay $10k.