First Duplex Purchase with only $3,000 out of Pocket!

First Duplex Purchase with only $3,000 out of Pocket!

Residential Real Estate Broker · Mount Vernon, WA · Member since 2015 · 28 posts · 47 votes

We just received loan approval on our first investment property! We still have to sign and record the transaction, but we should be closed by the middle of next week. It is a duplex that we will live in half and rent out the other half. We are using FHA financing at 3.65% interest (I don't think rates can get much better than that).

I am excited and very nervous at the same time. Something about your first property is nerve-wrecking! We will be inheriting the tenant next to us, but they are on a month-to-month agreement. They have been renting there for 3 years now, and it seems like they take good care of the unit when we did our inspection. They are using Section 8 so that'll be a learning experience right off the bat.

I was putting off buying a property for so long, because I didn't think we could afford it. As it turns out, it was a lot more doable than I realized. It helps that we were able to apply the rent from one side of the duplex toward our income to qualify. 

We are getting in to this property for about $3k out of pocket, which allows us to keep our reserves healthy for any unexpected expenses. Being a RE Broker representing myself in the transaction, it turns out I can use my commission as a "buyer credit", which is about $8k. The seller is contributing $2k toward our closing costs and the listing agent is contributing another $2.5k toward our closing costs. (Word of advice here: never ask an agent to contribute part of their commission toward your closing costs or you risk seriously damaging your relationship with them. In our case, it was a very tough negotiation with a stubborn seller, and the listing agent offered her contribution to bring the deal together. I've also built a great relationship with a majority of the local agents in my area, so that helps too). 

We haven't even moved in to this one yet, and I'm already looking at how we can get the next deal! 

Thank you, BP! 

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Financial services executive · Frederick, MD · Member since 2015 · 609 posts · 341 votes
10y

Congrats. You'll find Section 8 to be a breeze. You need to take your HUD1  to the Housing Authority so they can switch the direct deposit over to you. The good and bad thing is they'll likely be around all day. I like that at my remote rentals. I wouldn't care for it with them next door. I suggest you give them a plan of contact, hours method etc that takes place out and away from the home. Set clear boundaries that you don't want to receive reports about problems at your home. If they try stand firm cause nothing is worse than bitching tenants when you're trying to wind down. Finally, be nice but aloof. Don't make friends  brief and professional. If they lose their voucher you might have to put themy out one day.

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  • Flipper/Rehabber · Sacramento, CA · Member since 2016 · 807 posts · 815 votes
    10y

    That's awesome!  What are the numbers? 

    Purchase price,  loan amount,  total down,  expected rent and expenses? 

  • Financial services executive · Frederick, MD · Member since 2015 · 609 posts · 341 votes
    10y

    Congrats. You'll find Section 8 to be a breeze. You need to take your HUD1  to the Housing Authority so they can switch the direct deposit over to you. The good and bad thing is they'll likely be around all day. I like that at my remote rentals. I wouldn't care for it with them next door. I suggest you give them a plan of contact, hours method etc that takes place out and away from the home. Set clear boundaries that you don't want to receive reports about problems at your home. If they try stand firm cause nothing is worse than bitching tenants when you're trying to wind down. Finally, be nice but aloof. Don't make friends  brief and professional. If they lose their voucher you might have to put themy out one day.

  • Orlando, FL · Member since 2015 · 79 posts · 20 votes
    10y
    Congratulations and good luck.
  • Residential Real Estate Broker · Mount Vernon, WA · Member since 2015 · 28 posts · 47 votes
    10y

    @JR T. That is great advice! I've been thinking about how it'll work with the tenants next to us, and I think you are right about setting clear boundaries, and right from the beginning. We have a 6-year old, so I definitely don't want tenants knocking on the door all hours of the night. I think I am going to sit down with them, sign a new agreement, and go over a written plan of contact with them as you suggested. Where would you recommend they send reports about problems?

    @Pratik P. The purchase price is $278,000, and we're putting 3.5% down with FHA financing. The rent for one side is $1,200. PITI payments will be about $1,750. I ran the numbers through the BP calc (including vacancy, capex and maintenance), and it estimated about $200/month in cash flow if both sides were rented for $1,200. The nice thing is that it was completely rehabbed in 2011, so that'll give us some time to set money aside for major expenses. I've been very interested in using a 203k Rehab loan to maybe get a better deal, but this one just makes sense for us. It's near the best school in the district for my daughter, and multi-families in the area don't come up very often. Either way, we'll be way better off than renting. For now, I am planning on holding the duplex long-term. I'll be 58 when the mortgage is paid off, right in time for retirement. :-)

    @Account Closed Thanks, Shane! We're excited.  

  • Professional · Queen Creek, AZ · Member since 2015 · 18 posts · 5 votes
    10y

    Congrats Jenna!!!!

  • Gabriola, BC · Member since 2015 · 29 posts · 7 votes
    10y

    Congrats!!

    Signing an agreement would be a great thought as you are a family man.

    Good luck.

  • Wholesaler · Fredericksburg, PA · Member since 2016 · 1 post · 2 votes
    10y

    congratulations! !! Don't settle for just the first deal . Turn the page and keep building your portfolio! !

  • Hanover, MD · Member since 2016 · 1 post · 1 vote
    10y

    Good job! Thanks for the share!

  • Eagle Pass, TX · Member since 2016 · 1 post · 1 vote
    10y

    Congratulations! Your experience has motivated me.

  • Abel CurielBusiness Member
    Real Estate Agent · Queens, NY · Member since 2016 · 2k+ posts · 1k+ votes
    10y
    Congratulations! I love the house-hacking approach and it seems to have you off to a great start so far. Best of luck to you and I look forward to reading about your NEXT success story! -Abel
    REbuild Team - eXp Realty5234 Reviews
  • Real Estate Agent · Saint Augustine, FL · Member since 2016 · 7 posts · 2 votes
    10y

    Good for you and your family!

  • Investor · Frisco, TX · Member since 2014 · 17 posts · 8 votes
    10y

    Sounds like a good deal. I'm also in the process of looking for a duplex also but i'm finding it tough finding one with a good school ISD. 

  • Investor · Vancouver, WA · Member since 2014 · 359 posts · 143 votes
    10y

    @Jenna Estefan Congrats on your first investment property!

    Can you give more details about using your commission as a buyers credit? Are there rules to go with that?

    I just got my RE licence and was wondering if I could do that.

  • New Haven, CT · Member since 2016 · 90 posts · 99 votes
    10y

     @Jenna

    @Jenna Estefan

    Congrats!

    I am interested to know how that 8k commission works because my girlfriend is in the process of getting her license, and we are under contract on our first home. Does your broker not take any commission from the 8k, or what? Any details would be very appreciated. 

    Thanks!

    Matt

  • Investor · Jackson, MS · Member since 2014 · 1k+ posts · 769 votes
    10y

    Except for the fact that you have to live next to them, I think you will find that Section 8 tenants are much less of a hassle. Since HUD is paying the rent they never feel like you are charging them too much and they are less likely to move out.

  • Montclair, NJ · Member since 2015 · 4 posts · 1 vote
    10y

    That is awesome, Congratulation!

  • Underwriter · Sun Prairie, WI · Member since 2015 · 4 posts · 1 vote
    10y

    Congrats!!! Make that the first of many.

  • Oyster Bay, NY · Member since 2016 · 2 posts · 1 vote
    10y

    Hi Jenna,

    How were you able to put down only 3.5%? In New York, they require 20% down. 

  • Contractor · Chadds Ford, PA · Member since 2015 · 567 posts · 460 votes
    10y

    Congrats @Jenna Estefan! Way to work the systems to get you into your first investment for very little money down. With that loan, keep in mind that you are paying PMI, which you can get rid of by refinancing once you have 20% equity (either by principal paydown or appreciation). Keep an eye on the value of the home and be ready to pull the trigger on a refi that may save you significantly on your monthly payment and increase your cashflow right away.

  • Investor · NJ · Member since 2015 · 182 posts · 38 votes
    10y

    Congratulations @Jenna Estefan

    @Account Closed FHA loan was used to put down 3.5%. This loan is for individuals with lower income, helping people to become home owners by enabling lower down payments. You must live in the property to qualify for an FHA loan.

  • Investor · NJ · Member since 2015 · 182 posts · 38 votes
    10y

    @Matthew A.

    Jenna is a Broker, so she doesn't have to pay a commission split. When you're a Real Estate agent (Licensed Salesperson) then you pay a commission split to your broker. 

  • New Haven, CT · Member since 2016 · 90 posts · 99 votes
    10y

    @Shanel Wiggins

    Thanks Shanel, I skipped over that part and thought she said real estate agent, so I was confused. 

    Matt

  • Investor · NJ · Member since 2015 · 182 posts · 38 votes
    10y

    @Matthew A.

    Got ya... You're welcome. 

  • Oyster Bay, NY · Member since 2016 · 2 posts · 1 vote
    10y

    So the total down payment eas 10%?

  • Real Estate Agent · Baytown, TX · Member since 2016 · 14 posts · 3 votes
    10y

    Being a realtor I understand you applying your commission to the deal (I did the same thing on a house I bought last month) but how did you get the sellers agent to do the same

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