Approaching my first property a little different

4 Replies

My wife and I are looking to purchase this fixer upper for our PRIMARY residence as our first property.

We initially wanted to do a house hack but this opportunity came up. The home is about 50% higher then what we were wanting to spend on our first home but the equity it will build for us is 200k+.

My thought process was we could get our dream home instead of working our way up to it and open up a pool of equity that we did would not of had access to in the first place. We are starting with low capital and I saw this and thought it could be a huge jump start to our business.

I know it’s different than a lot of the lessons that are taught on BP, but I wanted to see if the community thought it was a good idea too.

Numbers below

FHA 203K loan

140k purchase

35k rehab budget

175k TOTAL

Refinance at 260k to finish rehab

ARV = 440k+

The numbers sound great for the property.  But you intend to hold on to the property rather than sell it?

@Lee Burns I do intend to hold it and pull out equity from the property on our first multi family later down the road when a good deal approaches.

My wife and I are looking at a similar deal for our 2nd property. Live and flip without the flip, then a HELOC to pull the cash it for more deals on rentals. You're not alone hear. I think @Mindy Jensen would have some good advice here.  

@Levi Benton Levi - Your numbers are fine but make sure you have all the loan requirements clearly understood. Depending on traditional or streamline 203k, they vary. In general, it's not a very flexible loan. For example, you have 30 days to start reno and 6 months to complete - that can be tough if you run into obstacles such as a bad contractor. On that note, it's extremely tough changing contractors. Same goes for pre-approved plans and budgets. Let's say you open up the house and realize electrical could really need replacing or structural change such as open floor plan would look a lot better. Renovation plan changes and budget changes are not easy to get approved and again, you have six months. Luxury items (hot tubs, pools, outdoor fireplace) and even softscape landscaping (tree removal, bushes, sod) all will not be approved. Also interest rates are higher than traditional mortgage and may cost 0-1 points at closing. Lastly sellers as a whole know FHA 203K loans take longer to settle and have a lower chance of approval so your offer going in as at a disadvantage.

If you don’t have the funds to renovate, the bottom line is that two options are a lot better:

1) Combination of traditional mortgage and home equity line of credit. This would give you a cheap long-term loan and the line would give you truly flexible rehab financing. Unless you need to close really quickly, this is the best option in my opinion for a primary house that you plan to hold.

2) Private money loan and then refinance. This is a little more expense in the short-term at 8-10% interest and 1-3 points but the loan will only be in place for 6-12 months and qualifying is incredibly quick and easy if you have 600+ credit and solid equity in the house. You can’t live in the house while the loan is in place but you can’t do that either during renovation with a 203k loan.

Best of luck!

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