Would like some advice with my first real estate investment

Question

Hello, I am a first time homebuyer looking to finance with either a 203k loan or standard FHA loan I have pretty decent credit but not enough cash down payment for conventional loan which is why I'm going the FHA route..my goal after I receive my preapproval is to buy a foreclosed fixer upper in the price range of 60k-80k(either duplex or single family) and use the 203k to add value i.e add rooms upgrade kitchen etc then after a year of primary residency (required for FHA loans) I plan to rent out the other half (if duplex style) and hopefully create some kind of positive  cash flow after expenses etc. I understand it's alot more to the process as I have done a ton of research but if I can receive any feedback it would be greatly appreciated.

Nancy L. · Answer

Sounds like a good plan! If you're looking at duplexes, I'd make sure it would be profitable if it were fully rented out. When you go to sell someday, you'll want the numbers to work for an investor since most people looking just for a home don't buy duplexes. Try computing cap rate. That will give you an idea of what it's worth as an investment property.

Rocco Racaniello · Answer

It would be helpful to know what your numbers look like, Mortgage amount with taxes and MIP, Home Owners Ins, etc.. What is the expected income from the second unit, What is the ARV ( after repair value) of the home your purchasing. Out of pocket expenses ( not sure if you can roll closing cost into your mortgage, Sometimes No. Also 203K will only allow licensed contractors to do the work, So you cant do them yourself. ( this could change your repair cost dramatically)

What is the average days on market for a rental, What is your estimated repair time? ( these will effect your holding cost).

You may need to have 2 - 3 months mortgage set aside, Incidental repair cost as well ( as a landlord you will need to fix problems right away or tenant can withhold rent)

You have a lot to consider when venturing into this , Be careful.

With out numbers we can not really give you any advice on the investment side.

With that said: In theory what you are looking to do is a great idea, If all the numbers work.

Ryan Coleman · Answer

There are conventional products for 3% down. Look into the product, it's called HomeReady.

Also how about USDA 100% financing.

203k is a good option. Although us mortgage companies will put you through the ringer, but mostly because of everything that has to aligned.

Also DP assistance can only go towards down payment, as well as closing costs. None towards repairs.

Shane Row · Answer

thank you @Johnstaples

Shane Row · Answer

@TylerHerman I don't have a specific question just trying to receive some professional feedback on my rough copy of a plan..I believe with a conventional loan you need at least 5% to put down and as far as repairs I wouldn't have enough cash to really make an impact on a fixer upper

Shane Row · Answer

thanks for the reply @ryancoleman I am planning to have roughly around 5k to either deposit and or put away for future expenses my budget for the house with renovation expenses will be between 100k-130k depending on how much I'm approved for with this budget  I would still be able to manage the mortgage by myself in case of any vacancy rate. unfortunately from what I was told with the 203k loan I would not be able to receive any down payment assistance which is why I am juggling between a standard FHA and receive assistance or 203k and receive renovation $$

Tyler Herman · Answer

What is your question?

Never done a 203k but from what I hear it can be a bit of a process. If you're going to live there for a year anyway you might as well just go with a conventional loan and pay for repairs out of pocket.

Ryan Coleman · Answer

Hey Shane,

How much money are you working with? 203k requires 3.5% down at minimum. With that being said 203k is a great option to fix, repair, as well as alter the home with ultimate goal of increasing the homes overall value. Also keep in mind, whatever additions you are looking to add will be rolled into the total overall loan amount as well.

I'd suggest also looking into any down payment assistance programs provided through your local community/city. Income limits, as well as retaining home for a certain period of time come into play, but if you were to retain/rent and jump to another property. Could be a lucrative move for little to no money down.

Also look into any USDA 100% financing loans. Which is restricted to certain areas, but when there is a will, there is a way.

Best,

Ryan

Would like some advice with my first real estate investment

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