First House Plan and Challenges to Overcome

Hey guys, my name is Chris and I live in Portland, Oregon. It's a hot market and a "place to be" but as of January 2017 the market is cooling. With interest rates on the rise and property values still increasing, I feel a sense of urgency to purchase my first house in 2017.

Some background (I'll keep it brief): I was a Great Recession graduate in 2009 and really struggled for about four years. In 2013 I moved to Portland, Oregon without a car and hardly any money in the bank, was riding a bike to get around and felt pretty cynical about life. Buying a house wasn't even a thought... I rented and still am renting as of writing this.

Since 2013 my business (I'm self-employed) has done better after a lot of hard work and I'm in a much more realistic financial position to purchase a home via a FHA loan.

First House Plan Summary

Purchase a 4 bedroom home in the Portland area with 10 - 20k of cosmetic repairs needed via a ~$300,000 FHA loan with 4% down payment + $25,000 203k loan by June 2017. Rehab home while living in it, rent out other 3 bedrooms when major rehab is complete. Continue to improve home for two years. After two years refinance the loan, 1031 most/all of the cash into new investment properties. Maintain original property as 4 bedroom rental.

However, as with any worthwhile plan/goal, there are some serious challenges in my way.

Challenges with First House Plan

1. My self-employment income will only qualify me for a 200k maybe 225k FHA loan according to standard calculations.

2. Since I'm looking for a 4 bedroom house in Portland, a near-minimum for a decent 4 bedroom home is 300k.

3. To qualify for said FHA loan, I'll need to avoid writing off some expenses, so I'll end up paying quite a bit more to Uncle Sam this year.

Potential Solutions to Challenges

1. Seller-financing: unfortunately from everything I've heard this is very rare in Portland since it's such a hot market... but if I can find a good seller-financing deal, this seller could likely be more lenient on income requirements than a bank would be. I will be searching for seller-financing deals.

2. Private lending/investor opportunity: is it far-fetched to think I could find an investor interested in 50% profit from this first deal in exchange for helping me put more money down toward the house/helping me qualify for the FHA loan + 203k loan I need? Nothing is impossible. I'll be actively reaching out to Portland-based investors to present it as an opportunity.

3. Co-sign with family member: my least preferred choice, but a last ditch option: I could co-sign on the house with family, likely my dad. But as I said: I really don't want to do this. However, I'm so determined to get a house this year that if all else fails, this will be my contingency plan.

While I know they cannot calculate this into their considerations, because I will be renting 3 out of 4 bedrooms I will easily be able to make the monthly payment for a 4 bedroom home of $300,000 or less in the Portland area by renting out each room for $700 per month with utilities + internet included.

But banks don't care about that, they just care about my income. Which is why I'm thinking more and more it might make the most sense to approach an investor about splitting profit on this house as a first deal.

To put it simply: the income requirement for the loan size I'm seeking is a little bit higher than what I'll be able to show for 2016 (especially since they'll average 2015 + 2016).

This is one of the main issues I'm looking to solve and am networking with many Portland-based real estate agents, investors and others to find opportunities outside of a traditional purchase. I'd kinda prefer to avoid banks if possible anyway.

Alright, I wanted to start this blog off with a general outline of my plan and its challenges. The plan might change some, but applying the BRRR strategy to my first house via house hacking seems like a pretty sound strategy from everything BP has taught me.

Thanks guys and I'll be touching base again soon, I will try to post on this blog at least once per month, hopefully more. Determined to buy my first home and begin my real estate investing journey this year.