I am 23 years old and looking to begin my real estate investing career in the next year. I have been educating myself through reading articles and the BP podcast as well as saving my current income. I also have family members who are currently investing so have learned some things from them. I live and work near Hopkins, MN. My end-goal is to buy and hold rental properties and would like to start that journey through "househacking" a plex. I am looking in the Hopkins area, North Minneapolis, South Minneapolis, and Saint Louis Park.
In addition, I have already spoke with a loan officer who did pre-approve me for a loan. This loan did include PMI and I am curious if anyone knows if it is possible to get a loan with a low-down payment and no PMI for a first-time home buyer? I know I have great credit and perhaps could have a co-signer.
Finally, which of the areas that I listed above (or any other areas for that matter) should I focus on finding a good deal that will at-least break-even? I more or less want to gain the experience and build the equity from the first deal rather than cash flow. It would also be super nice if my mortgage would be fully paid for or almost paid for by the tenants and I wouldn't have drive for an hour to Hopkins from my house.
Thank you all for any advice you can provide! I really appreciate it.
@Jadde Rowe It is possible to buy out your mortgage insurance on a conventional duplex loan. The exact down payment, in that case, would depend on your credit score. The math would be similar to 5% of purchase price + MI buyout factor (ie 1.56-3.15%)= approximate minimum down payment 6.5-8%. I realize those do not add up exactly but the down payment is on the price and the MI buyout is on the loan amount so they never add up exactly. Of course, this is just an illustration of what I normally see. I just had someone buyout MI on a non-duplex with total down of 4.5% today. This would not be possible on a duplex but the terms vary based heavily on your situation.
Hi Jadde- Excited to see you get started by house hacking!
Please note I am not a Mortgage broker, lawyer or Accountant so my suggestions are just off of personal experience.
I was in a similar situation as you for my first home, but didn't house hack. You can get a conventional loan with 3-5% down depending on the lender and there were essentially 3 options for me I'll do my best to explain then it comes down to finding the right lender/broker.
1. Pay PMI monthly
2. Pay PMI upfront (usually thousands of dollars but essentially you are "pre-paying" the PMI premium when you put your down payment and closing costs up so you'll end up putting a little more down)
3. Roll it into the loan (This means you take a higher interest rate and don't pay PMI so some lenders will say they have a 4.5% interest rate they will give you the same loan for 4.8% with no PMI. It's essentially using the higher interest to pay for option 2)
There are break even points on all of these and lots to consider if you are wanting the lowest monthly payment then paying more upfront makes sense, if you just want to cash flow I would personally go option 3. It doesn't generally cost a lot more per month to do this but the lender makes up for it over time and the interest is tax deductible for you anyway.
Feel free to PM me if you have more questions and I'll see how I can help.
@Jadde Rowe , @Tim Swierczek is a very experienced loan officer that also has several investment properties, he self manages them as well. A good agent to get you started would be @Jordan Moorhead . He knows the twin cities well and has several investments. There are a few investors on the forum here that have a few properties in St. Louis Park and Hopkins. @James Woodrich and John Woodrich are a couple names that come to mind. I live in St. Louis Park, but its my personal residence single family. I can share what I know. Best of luck!
@Jadde Rowe do you have a better understanding of any of those markets in comparison to the other ones? I would probably go with what I know best. That being said, I would speculate that your dollar would carry you a little further in Hopkins than St. Louis Park and South Minneapolis.
Is your strategy to go through the MLS or are you trying to find something off market?
@Jadde Rowe I'd look in North, Northeast and South to find something that will work well for a househack. I've been in quite a few in those areas recently that work.
@Jadde Rowe I would shop around lenders a bit more. Not every lender offers the same product, has access to the same credit union or bank. @Tim Swierczek is a great person to work with. Follow his advice for a loan product and an option you're comfortable with.
You said you have a co-signer. Maybe there's an opportunity to get private money from them? Flip a house, Brrrrr method, use the money to put 20%?
@Brenton Braddock Hopkins is expensive and has high property taxes because the city continuously invests in referendums to improve the school. I grew up in Hopkins, have owned several properties in Hopkins, and my brother still owns a few. The cheapest house for sale in Hopkins right now is $219k for a 2br 1ba....
Hopkins and St. Louis Park are very hard targets for multi-family because there aren't many small multi-family properties. That holds true for most of the west metro actually. NE still has some deals so that may be a good area to target.
So you may be in the same boat when I first started last December, What I wanted to do is the same thing you wanted, I am 25 closed on my first property in June, my second in July and I bought them both near colleges, so pretty much acts like a mini multi family renting our private rooms with shared common area, check out that style of investing if you can. But ya I read books and watched almost all the podcasts and taught my self. keep educating yourself because it is scary at first but once you see the results of your hard work, its all worth it
@John Woodrich thanks for the market update!
@Tim Swierczek Thank you for the illustration!
@Armin Nazarinia I appreciate you breaking down the options for me. I ideally want to cash flow so option 3 may be the way to go for me, but understand that by putting less down it will be more difficult.
@Isaac Braun Thanks for the connections!
@Brenton Braddock I have a baseline understanding of all of those markets I discussed but not one that is my strong suit. Currently, I am looking on the MLS only, but by continuing to network something off market may pop up. I am open to either strategy.
@Jordan Moorhead Thanks for the advice. Northeast and South do seem like solid areas to find a good deal. I will be attending the 'Northeast House Hacking Meetup' on the 30th. If you will be there, let's connect in person and talk more!
@Adam Widder I will definitely shop around for some additional lenders. My co-signer is an option to obtain some private money but want to see what is possible without using that first. Thanks for the advice!
@John Woodrich Thank you for the market explantion! Hopkins has seemed expensive when I have been looking at the numbers and primarily from the property taxes so that makes complete sense.
@Ali Zantout Thanks for the advice! I will keep putting in work.
I appreciate you all responding to my questions and offering your advice. I may reach out to a few of you personally with some additional questions. Thanks again and I wish the best of luck to all!
@Ali Zantout I'm just looking to cover one rental to a power Ripon rental with shared common areas. I'm curious how your l you handled house rules, cleanliness, etc. Ilk PM you too get specific questions.
Hey @Jadde Rowe , welcome to the forums!
One note on option 2 that @Armin Nazarinia mentioned- this pre-payment is sometimes a reduced total when compared to the total outlay for PMI if you paid it until you hit 20% equity per your amortization schedule. I think our PMI buyout was something like 60% of the total PMI we would have paid had we rode it until 20% and not refinanced or re-appraised. Now, if you expect to hit 20% equity much sooner than you would through principle paydown alone (if you expect market appreciate or plan to force appreciation through improvements), your decision is a bit more complicated, because you obviously can't get that chunk of cash that you laid out for the buyout back.
Same story as Armin, though. I'm not a lender, but wanted to make you aware that this is an option that you should ask about. I can put you in contact with our lender as well if you want to touch base with him on your options.
Welcome to BP! I'm new to REI as well and would love to connect if you ever want to grab coffee in the near future.
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