Is my way to get in real estate could work ?

Question

I have some questions and need advice from someone expert. I want to get into real estate but here is my stuation.

I'm currently renting and my rent is around 1400 and I don't have too much saved up for a down payment ( < 10k ). I get to the conclusion that I'm losing this money since when I moved from there I will have nothing. No equity build-up! Nothing. So I decided to look for a condo/townhouse to buy where my mortgage payment will be around the same as my rent.

By doing that, I hope to be continuing saving for a down payment for my first investment property and with the equity, I will have build up on my condo ( the one i want to buy ), I can take an HELOC loan and add to my saving giving me more leverage for the property.

What did you think about the idea? Could someone suggest me a better plan?

Thanks

Travis Timmons · Answer

House hack! Get a 2 BR condo and rent the 2nd room to a friend. Better yet, but harder given the price point, find a duplex or single family home with a finished basement/separate entrance that you could rent out. I'd stay away from a condo purchase unless you don't have any other options. They don't appreciate like SFHs and HOAs kill cash flow and can be a real hindrance to your creative plans to maximize rents (rent by the room, short term rental, etc.).

As mentioned above, you need a cash reserve if you own property. Things break all of the time. If you don't have at least a few months of expenses sitting in a checking or savings account, you can get wiped out by a single maintenance problem. Slow and steady still wins the race. I'd suggest finding a side hustle to make more money before jumping into a purchase when you have less than $10k cash. Work your a$$ off, live off of nothing, and be patient.

Charles Carillo · Answer

@Noyessie Hubert

Paying rent is not losing money. You are paying a set fee that during your lease period will not exceed the exact amount you agreed to ($1400). When you purchase a property, yes you are building equity (minimally in the beginning) but you there are additional fees and expenses that you will incur. HVAC or appliances need to be replaced, the HOA has an assessment, the HOA increases its annual fee or your insurance/property taxes increase. Even small repairs add up (both time and money) over the years. If your real goal is to purchase an investment property, maybe save up for that while you are renting.

Tom S. · Answer

@Noyessie Hubert  Personally I would hold off and save a bit more.  There's definitely slight downward pressure on home prices now, not much, but even at 5% down over the next year will put you way upside down with a 0% downpayment + closing costs on a $500k home.

Obviously no one knows the market for sure, but lots of uncertainly at the moment over the future price direction.  No rush to jump in.

Jaron Walling · Answer

@Noyessie Hubert Others have touched on the key points of owning vs renting. It's not an apples to apple comparison.

"So I decided to look for a condo/townhouse to buy where my mortgage payment will be around the same as my rent" - This statement reads like a compromise. Like you're settling for a lesser property, poor location, and expensive HOA's, etc. DON'T DO THIS. If the location sucks or the property hasn't experienced major appreciation (in the last few years) don't expect anything to change in the future. Some areas simply don't appreciate. We drive through neighborhoods like this everyday in my market (cash-flow market). If I'm investing $______ of my own money and my TIME I'm commanding more pieces of the pie (tax saving, cash-flow, principle paydown, and appreciation).

Don't waste you time talking about HELOC's until you own property, add value, or both. From a beginner's prospective it's just risk. Running numbers, finding/hiring contractors, walking numerous properties, estimating rehabs, and learning a market is more important.

Jaron Walling · Answer

Agreed with @Tom S. to hold and wait for a few years. You mentioned a possible marriage as well. That could be a HUGE factor if you like it or not. I was full steam ahead on REI before I meet my lady, but things have shifted. Risky anything ain't happening or it's challenged with conversation and more market research.

Noyessie Hubert · Answer

1. I can have a 0% down loan from Navy Federal without PMI with APR of around 7.1%. This covers only Condo and Single Familly homes.

2. I can start putting around 1500 per month in saving for the down payment.

3. I will be able to save 3k per month after the month of May. In fact, my income is 120k+ and If I'm not putting more than 2k now, is because I plan to get married before May. That's some kind of expense.

4. I check and saw that I can get approve for an FHA loan for up to 750k, but I need to put 3.5% down. But I don't know the interest rate yet. I just have the pre-approval letter.

5. I live in North Arlington, 7 mile for the center of Jersey City. Jersey City is like 5 min to New York. Most people live in North Arlington and Jersey City to go work at NY

So based on all that, did you recommend me to:

1. Keep saving for like 2 years and continue renting until I get around 35k to get a multi-family home ?

2. Other options ?

Thanks.

Ke Nan Wang · Answer

@Noyessie Hubert I agree with people's points in this post so far. To add more, paying rent vs paying mortgage are not the same. You can do a loan calculation and look at the amortization table, a heavy amount of mortgage payment paid in the beginning is towards the interest. So in general, the first two years of paying down a mortgage, you are mostly paying interest to the bank, so that would be the equivalent of your view as "money loss", similar to paying rent. Then you have to pay closing cost for the loan and cost associated with closing the property (inspection, appraisal, etc.) All of these money are essentially your view of "money loss" where you didn't have to pay any of that if renting. On top of that, you have to pay property taxes, insurance and any maintenance cost. The older the house or the longer since its most recent update, the higher the maintenance cost. So if you end up in a situation where you have to sell within a couple of years, unless the property appreciates over 30% (which nobody can predict that with absolute certainty), you are better off renting.

I wouldn't think renting is something definitely inferior to buying. They both have pros and cons and do what makes sense for one's current position and their future goals.

Of course it goes without saying, owning real estate has tremendous upsides. Overall the pros heavily outweighs the cons. But it is a long term game.

Lastly, a HELOC only comes to play if you have huge equity in a property either through value add or appreciation in the short term, or loan paydown and appreciation in the long run. So don't plan on that in the near future unless you hit the jackpot of real estate.

Jake Handler · Answer

You should speak directly to a lender and sort out what you can afford now/what your plan of action can be to afford a home in the near future. Above you said you have <10k saved, but also said you were preapproved for a loan of 750k?  What down payment/interest rate/taxes, etc was that pre approval based off of?  It seems like you would benefit more from a personal consultation than a forum post with general advice.  Feel free to message me and I can refer you to local people who I think can help you based off your personal circumstance.

Deandre P. · Answer

I would like at house hacking if possible.  Look into purchasing a duplex, tri-plex or four plex.  FHA allows for the purchase of 1-4 residential.  This way you can stay in one of the unit, and collect rent from the others. Also, will give you a good start on your real estate investing journey.

Dave Skow · Answer

@Noyessie Hubert...I would  recommend  either  1) continuing to  save so you  can ample  funds to  buy the 500-750K range  you want   2)  consider  adding a co borrower  to the mix ( partner / spouse / relative )    3)  buying a  lower price  condo now  ...letting it appreciate and then  leverage  the  equity  plus  using  savings for the new  proeprty  ..this options   will likely take  years to happen

Is my way to get in real estate could work ?

Most Popular Reply