Advice needed for 1st investment

[Mario Cruz]

Hi, my name is Mario and I am brand new to real estate investing. We are a family of 4 and looking for our first investment opportunity and seeking advice from the BP family. Our plan is to purchase a multi-family home, live in one unit and rent out the other. We have roughly 100K available and plan to purchase with an FHA loan. In your experience, does this seem like a reasonable plan or would purchasing a single-family home to live in for 1 year, then renting out be a better option? Any advice would be appreciated!

[Andrew Garcia]

Hi @Mario Cruz, house hacking is a great plan! With an FHA, you do not need to use up all your assets. It is only 3.5% down. You can then buy a single-family in a year with 5% down and live in it for a year and repeat.

With house hacking, you either have a significantly reduced monthly mortgage payment or none at all!

With a single-family, you generally have more comfort and higher appreciation. 

It really depends on which strategy you prefer. If you go with single-family, also look into 3% down conventional financing.

Hope this helps! Let me know if I can be of any assistance.

[Mario Cruz]

Hi @ Andrew Garcia, Yes I will look into buying a duplex. The only problem is when one hits my market is gone within a day. I appreciate the advice. Thanks!

[John Warren]

@Mario Cruz you are pursuing one of the most amazing strategies out there. House hacking is one of the great cheat codes left in real estate as it allows you to control a large amount of real estate with very little money down. Duplexes tend not to be massive cash flow plays in most Chicago markets, but they can help you dramatically reduce your cost of living. 

The market has definitely been insane as you referenced, and a lot of buyers have been frustrated by how quickly inventory moves. You need the right team to be responsive and aggressive to get the deals you like under contract. What areas have you been looking in up till now? 

[Lien Vuong]

Multi purchase for sure for economies of scale and higher appreciating with fast debt paydown. You're on the right track!

[Nick Riccio]

@Mario Cruz this sounds like a great plan! House hacking will allow you to build wealth at a pace otherwise would be unattainable. If you can, I'd seek a multi family. Determine what you and your family want/need, and then laser focus on it. Best of luck!

[Paul De Luca]

@Mario Cruz

That's a very reasonable plan. Of course it depends on where you're looking and your budget though. I've also found it's useful to have a conventional loan pre approval for a similarly low amount (5% down) since that opens up more options for you when a seller is only taking conventional or cash offers. I also recommend looking for legal 2-flats that are either duplexed up or down OR there is a 3rd additional dwelling unit.

[Charles Clark]

Bom dia @Mario Cruz, I hope all is well with you mentally, physically & spiritually. 

Mario this is a question and it depends on your end goal. If you are trying to maximize your return sooner than later, I would suggestion purchasing a multi-family. With a FHA, you can purchase 1-4 units. If your family can handle being in a smaller place for a year, I would recommend buying a four unit. Yes, a single family or duplex will give your family the space and comfort. However, purchasing a 3 or 4 unit building will allow you to scale quicker. With the extra income, you will be able to purchase a single family in 1 to 2 years.

Let me know if you would like to chat more about the many options you have. If there's anything I can assist you with, please do not hesitate to contact me.

Beleza,

Charles Anthony

[Steven Foster Wilson]

Quote from @Mario Cruz:

Hi, my name is Mario and I am brand new to real estate investing. We are a family of 4 and looking for our first investment opportunity and seeking advice from the BP family. Our plan is to purchase a multi-family home, live in one unit and rent out the other. We have roughly 100K available and plan to purchase with an FHA loan. In your experience, does this seem like a reasonable plan or would purchasing a single-family home to live in for 1 year, then renting out be a better option? Any advice would be appreciated!

I think the going with the FHA loan and a multi family is a great plan. That is what my wife and I did here in Columbus,Ohio. My first BRRRRR was $300k with a FHA loan, put $50k into it, refinanced, and got $90k back. I just refinanced again and got another $50k and it still cash flows $1800/month. I would call around to a lot of lenders and see what other loans they can offer. On our most recent BRRRR we got a CHAMP loan and it was incredible. 

[Bradley Dosch]

Hey Mario; that’s an awesome position and plan you have! I think leveraging the 3.5% down payment to buy a multi family house hack is one of the best wealth accelerators possible. 

In terms of single vs multi, doesn’t matter too much imo. Whatever is most feasible in your market and fits your lifestyle/goals best. Focus on that and you’ll be fine. 

[Mario Cruz]

Hi everyone, Thank you for all your advice and comments. I will definitely be looking into a multi-family. 

[Dave Skow]

@Mario Cruz- try to avoid using a FHA loan because 1) the FHA loan includes a hugher upfront mtg ins premium fee of 1.75% and 2) the monthly mortgage insunsurance is high and it is also permanenet ( meaning you cant ask lender to elimnate it when equity is developed ) ...I would suggest using a conventional loan / putting as little as 3-5% down ....keep the FHA loan idea avaiable to use for a future purchase ( if needed)

[Patrick Drury]

@Mario Cruz
That's a great plan and is an excellent way to get started in real estate. It just depends on what the market is like in terms of price points where you are looking to invest. I suggest you ring off a couple of areas you are interested in, and some local agents/ local investors can chime in and give their 2 sense on if your price range is realistic compared to what things are trading for on the market today. 

[Crystal Smith]

Quote from @Mario Cruz:

Hi, my name is Mario and I am brand new to real estate investing. We are a family of 4 and looking for our first investment opportunity and seeking advice from the BP family. Our plan is to purchase a multi-family home, live in one unit and rent out the other. We have roughly 100K available and plan to purchase with an FHA loan. In your experience, does this seem like a reasonable plan or would purchasing a single-family home to live in for 1 year, then renting out be a better option? Any advice would be appreciated!

I think you multifamily purchase and rent out the rest is the better way to go.  You're going to have to be patient though finding a building with at least one unit large enough for your family.

[Steven Caldwell]

Quote from @Mario Cruz:

Hi, my name is Mario and I am brand new to real estate investing. We are a family of 4 and looking for our first investment opportunity and seeking advice from the BP family. Our plan is to purchase a multi-family home, live in one unit and rent out the other. We have roughly 100K available and plan to purchase with an FHA loan. In your experience, does this seem like a reasonable plan or would purchasing a single-family home to live in for 1 year, then renting out be a better option? Any advice would be appreciated!

sounds like a good plan. only thing id say is if using FHA and you plan on scaling in the future, dont have all 4 people on the loan. Each person can get their own FHA loan, and you can only have 1 FHA loan under your name at a time

[Chris Varsek]

I just had a first time buyer use the house-hacking strategy to great success! Bought their 4-plex last year with an FHA loan, lived in it until recently when they used the rest of their capital to invest in their first SFH that they will live in. In less than two years, they now have a 4plex cash-flowing and appreciating, and they are living in a home they love!

[Mario Cruz]

Thanks, everyone for all your suggestions. I'll definitely be looking into a multi-family.

[Nate Sanow]

It's a good plan.  Have you saved 100k or are you approved for 100k?  If approved for 100k, could be hard to find something at that price point depending on your market.  Besides that, your plan to house hack is solid.  I will say, I do think house hacking is not limited to renting out the other side of a duplex.  The goal is to use a loan on a primary residence to grow your wealth and Networth, right?  There are other ways this can be done, including a live in flip.   Targeting single family below market value could accomplish a similar goal.  Or, a live in / move out scenario where after a year you rent the house out, and then take advantage of getting another property with less of a down payment than you otherwise would.  

And coming back to your cash position. If you have 100k and can use a 3.5% down FHA, that means in my estimation you could get more than one property, again depending on your market.

[John Warren]

@Mario Cruz I am a bit torn here. House hacking is an incredible strategy, but I also had a family of four when I tried (and failed) to house hack. Lifestyle starts to get in the way as you get older, and in my experience, most buyers with families end up not pursuing house hacking for a variety of reasons. House hacking is still probably the most amazing financial move you can make if you can pull it off though! 

Why not purchase a modest home with a 5% down conventional or a 3.5% FHA? Then you can add some value to the home, see it increase in value and eventually pull the equity to continue investing through a cash out refinance or a HELOC? I personally made this choice, and now I have over 100 apartments in the portfolio 5 years later.

If you do choose to house hack, you will probably run into some pros and cons that a lot of buyers run into. Do you need a yard? What about a 3-bedroom apartment? Do you need something side by side, or are you ok with the typical "flat" model where your neighbors are above or below you (or both)? 

[Jonathan Klemm]

Hey @Mario Cruz - Sorry I am a little late to your post, but that sounds like the best possible option.  Congrats on setting up the plan and taking some action.

Is that $100k for the downpayment or $100k is the purchase price?  Also, you mentioned Chicago, are there any specific neighborhoods you are looking in?

Since it's been a while, how is your search going, have you made any offers?  Happy to help if the search is still ongoing, feel free to reach out.

[Eliott Elias]

Great plan. Cut down your expenses and let your tenant pay your mortgage off. 

[Michael K.]

Quote from @Mario Cruz:

Hi, my name is Mario and I am brand new to real estate investing. We are a family of 4 and looking for our first investment opportunity and seeking advice from the BP family. Our plan is to purchase a multi-family home, live in one unit and rent out the other. We have roughly 100K available and plan to purchase with an FHA loan. In your experience, does this seem like a reasonable plan or would purchasing a single-family home to live in for 1 year, then renting out be a better option? Any advice would be appreciated!

In Chicago, I would say that generally if you are hoping to get cash flow from a fully rented property then multi-unit is the way to go. More doors and less tax pins is good for that. With 100k saved up you should be able to get something. Just know that if you are going the FHA route that PMI will not come off for the life of the loan, whereas with conventional PMI will be removed after you exceed 20% LTV. You can go as low at 3% down conventional.

[Toby Kim]

@Dave Skow

Although are correct about those issues with an FHA I have to say that it is usually worth it if you have a low cash or credit score position since most lenders require 20-25% down on 3-4 units or +700 score to get the sub 10% down loans. Even if MIP is permanent it is oftentimes worth it given how little capital you need to purchase the quadplex. Also if it still cash flows after PITI it doesn't matter since you won't be paying anything anyways (your tenants will). You'll be getting paid to live in the property which allows you to save more and buy more real estate. Instead of sinking 100k into one property to save the couple $100 in cashflow due to the MIP why not make it up with another property? So buy a $400k quad with an FHA for $14k down and $10k closing cost. Now you still have $76k to go in for down payments for a triplex that's $300k. $60k plus closing costs and you'll prob still have cash leftover and you bought 7 units.

That MIP won't even be an issue.

[Dave Skow]

@Toby Kim- thanks and  all great points !

[Eudith Vacio]

Hey @Mario Cruz - GO FOR IT!

You are in a great financial condition especially if you're credit score is above 700 to purchase a multi-family. I think most of the BP community is in favor of house-hacking especially as a first time investor, that is one of your best options. 

Let us know how your search is going so far, best of luck!