Dear Biggerpockets members,
I want to thank you all for providing insight and knowledge about real estate investing on this site. I am learning something new everyday and am excited to getting started with my first real estate property. I am seeking advice and I hope anyone can help me as I am at a standstill with my decision to move forward.
A little about myself:
25 years old single male
Pre-approved for 100k 3.75% Fixed DHM Loan requiring 3% DP w/ No PMI
40k in Liquid Capital
10k in Savings/investments (can be liquidated if needed)
9k in student loans left
Currently renting home with mother & sister
Monthly Expenses: 1k Monthly Income Saved: 2-3k
My mother has been renting all her life (currently 50yo). After college, I came back home to live with my mother and sister to try to save some money before moving out on my own. After a while of working, I started reading "Rich Dad Poor Dad" and became fascinated with the idea of passive income. Further searching has led me to this BiggerPockets site where I am starting to learn about real estate investing. I love the idea of multi-unit owner occupied properties where the passive income can basically cover your mortgage and even add cash flow. I convince my mother into the idea since she is throwing away money every month renting. I have 2 ideas which could work out. First idea would be to buy a multi-unit property and my mother/sister would rent one of the units while I have tenants rent out the other units. Second idea would be to have my mother buy a single family home for herself and I buy a single family home for myself but with my SFH, I would find rent out the extra bedrooms. After building 2 years of work history, I went to get a pre-approval for a mortgage and began searching for my first property. Here are the 2 Ideas:
1311 Belasco Avenue
Pittsburgh, PA 15216
Unit 1: 2 Bed 1 Bath currently renting $850
Unit 2: 2-3 Bed 1 Bath currently renting $750 (Which my mother/sis would occupy)
Asking Price: $130k
Property Taxes: $1900/yr
Insurance: $800 estimated
Estimated Mortgage: $718/mo (Insur/taxes not included)
Note: I have seen this property in person and think it has great potential. I love the fact that the top unit is currently updated and rents $850 a month and my mother and sister could live in the bottom unit and provide me the extra income. In addition, the basement is unfinished and I could potentially turn this basement into another 2 bedroom unit providing more income. The negative of this situation is that the asking price is a little high and I am only approved for $100k but I do think I could get them down to $115k.
My mother will buy her own property and I will buy my own single family home in which I would rent out the 2 extra rooms.
2425 Glenroy Street
Pittsburgh, PA 15210
SFH: 3 Bed 1 Bath
Asking Price: $70k
Property Taxes: $1800/yr
Insurance: $400 estimated
Estimated Mortgage: $310/mo (Insur/taxes not included)
Note: Basically I would live and rent out the other 2 bedrooms. Mortgage/Ins/taxes estimated out to be $490 a month plus utilities. Thinking if I have 2 roommates each paying $350-400 a month, all my living expenses for the home would be paid for and I could basically live there as the third roommate for free.
From these two properties, there are pros and cons of each but I really need some advice on what to do here. I have been searching for multi-units under $110k but it is definitely hard to find.
Please provide your input as it will be greatly appreciated.
First of all, congrats on getting yourself in position to purchase property.
I've done two of the three things you mentioned in your question and am about to do the third. I originally rented out a room in my house. This obviously helped with the mortgage, but the renter basically took over the guest bath. He also destroyed it and the bedroom. So I got to repaint and re carpet the bedroom along with replace the fixtures in the bathroom. So you have to know your tolerance of living with others.
Second, I have since turned that house into a rental. I also bought another house and turned that into a rental. Both renters have been excellent so far. The second house has a positive cash flow of about $400.
Finally, like you, I'm in the market to purchase a multi-family property with an FHA loan. I believe the multiunit property will be more labor intensive, especially since I'll be living there, but I also expect to have a better cash flow. By the way, I live in the Central Valley in California.
One final thought, a SFR will appreciate faster than a multiunit. So you would also want to consider your exit strategy. I bought the second SFR with an FHA loan and in the year since I bought it, it has appreciated enough to have 20% equity in it. So just this past week I was able to refinance to a conventional loan, therefore allowing me to qualify for another FHA loan. I don't think I'll be able to do that again in the near future if I do end up getting a multiunit property......unless I can find an amazing deal!
Create Lasting Wealth Through Real Estate
Join the millions of people achieving financial freedom through the power of real estate investing