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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  • Property Manager · Columbia, TN · Member since 2014 · 11 posts · 6 votes
    10y

    Congrats, Jenna! I have my eye on a duplex, so encouraging to hear of your success. 

  • Berkeley, CA · Member since 2016 · 10 posts · 4 votes
    10y

    @Jenna Estefan

    Congratulations on your first property!

    You not only made on victory by buying your first investment property but you also did househacking, you got into duplexs, and use multiple creative finance strategies.

    Congratualtions on your multiple victories

  • Lender · Bellevue WA & Orange County, CA · Member since 2013 · 2k+ posts · 1k+ votes
    10y
    Originally posted by @Daniel Dietz:

    @Albert Bui,

    Are there 'low down payment options' other than FHA where you do NOT need to do a refinance down the road to get rid of the PMI? I am thinking multi-family owner occupied and I am in a 'rural area' where I know a lot of single family buyers are doing USDA Loans if that matters.

    Thanks, Dan Dietz

    USDA is an option but the problem with USDA is median income limits in order to qualify unlike FHA and VA which does not require your income to be under a specific amount.

    All loans that have low or no down payment has mortgage insurance that "may," necessitate a refinance at one point or another whether its included in the "rate," its financed within the loan like USDA and VA, or its both like USDA and FHA which has an upfront MIP (UFMIP) and a monthly MI as well.

    Even the conventional loan with 3-5% down payment with out monthly MI has a higher rate where the MI is built into the rate, called lender paid MI (LPMI).

  • Residential Real Estate Broker · Mount Vernon, WA · Member since 2015 · 28 posts · 47 votes
    10y

    @Christopher Richardson I may not fully understand the term, but how would this be an identity of interest transaction? 

    Loan docs are at escrow and we're signing tomorrow. 

  • Residential Real Estate Broker · Mount Vernon, WA · Member since 2015 · 28 posts · 47 votes
    10y

    @Lamar Thomas I'm going through Guild Mortgage. They just required a signed rental agreement. Keep asking around, they are out there!

  • Investor · Renton, WA · Member since 2016 · 21 posts · 7 votes
    10y

    Nice! I am looking forward to getting my first multi unit that same way. Congratulations!

  • Real Estate Agent · Sarasota, FL · Member since 2016 · 91 posts · 26 votes
    10y

    I'm working numbers out to purchase my first property as well and it's all about the creativity and figuring out how to get these properties for the lowest amount out of pocket. Congrats!

  • Information Systems and Cyber Security Manager – US ARMY · Augusta, GA · Member since 2015 · 128 posts · 30 votes
    10y
    Originally posted by @Eboni Allen:

    @John McConnell Thanks! I will do that.

     No worries,

    If you have any questions about it or even need some tips let me know.  Another great resource for tips and tricks is the GTD book (the latest edition).  Digitize everything!  :-)

  • Real Estate Agent · Berlin, MA · Member since 2013 · 130 posts · 95 votes
    10y

    Nice job, they'll only get better from here!

  • Dallas, GA · Member since 2016 · 34 posts · 4 votes
    10y

    Congrats!  Super excited, as a new investor I love hearing this stuff. Where did you find your property? What questions did you ask before buying? 

  • Lender · Haverhill, MA · Member since 2016 · 60 posts · 21 votes
    10y
    Originally posted by @Lamar Thomas:

    that is great congratulations!!! What bank did you use that allowed you to use the rent as income before the purchase? I haven't had any luck finding one. Every bank so far has told me I  have to wait 2 years before I can count the rent as income.

     Every lender I work with either uses 75% current rental rate or an appraiser's estimate on market rent. Maybe you should talk to a mortgage broker.

    Always with my best,

    Chris

  • Lender · Haverhill, MA · Member since 2016 · 60 posts · 21 votes
    10y
    Originally posted by @Jenna Estefan:

    @Christopher Richardson I may not fully understand the term, but how would this be an identity of interest transaction? 

    Loan docs are at escrow and we're signing tomorrow. 

    Jenna,

    After speaking to some lenders about it, I've come to find out that it's more at the lender's discretion whether or not it becomes part of the borrower's acceptable source of funds. It seems like the smaller lenders allow it no problem but larger ones claim it is identity of interest transaction (I've actually had them all read this thread). Please keep us posted on everything, this is a very unique transaction.

    Always with my best,

    Chris

  • Boston, MA · Member since 2016 · 22 posts · 1 vote
    10y

    Congratulations @Jenna Estefan!  I am currently looking for my first similar deal.  Thanks for the motivation!

  • Contractor · Jaffrey, NH · Member since 2016 · 102 posts · 14 votes
    10y

    Congratulations! I wish my first purchase was a duplex for the same reason as you - Investment. Is it possible to create an LLC or trust to put the house under that does not have your name directly associated then you can 'represent' the owner of the property as the live in property manager? Just thinking out loud :)

    Good luck with the landlording!

    Chris

  • Investor · Philadelphia, PA · Member since 2016 · 32 posts · 4 votes
    10y

    that is great congratulations!!! What bank did you use that allowed you to use 

  • Cary, NC · Member since 2015 · 32 posts · 7 votes
    10y
    Congrats! That a pretty solid deal.
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