All Forum Posts by: Jonathan Streufert

Hi @Yazeed A.

It can certainly help if you're looking to fund your deals using conventional financing! Lenders like to see that you have a steady income because it reduces the risk that you won't be able to pay them back. Also, it gives you some security that if a deal goes sour, you have backup funds at the ready. I have just 2 years of experience working at my current job but that seems to be plenty for the loan I'm currently closing on.

There are lenders that will lend with 3% down conventional for owner occupied properties; you can only have one FHA loan in your name at a time, but the low down conventional option can help.

What I might suggest is Brandon's infamous BRRRR strategy - Buy, Rehab, Rent, Refinance, Repeat. Purchase a small multifamily with 2-4 units with the FHA loan, put the money for repairs and increase your equity in the home. Once a year has passed since you first entered the home, you can refinance into a conventional mortgage, pull your money out, and buy your single family home at that point. One thing to keep in mind, though, is to make sure the rehab you're doing is for value-added things. If you put $20,000 into the rehab and that increases the value of the property by $50,000, that's a pretty good value add. Look for things like that so you can pull more money out during the refinance and hopefully still be in good shape to purchase the sfh a year or so later like you want.

Thanks for the input, @Brian Mcguire!

I'd like to buy it at a discount, but what worries me is how many agents are showing the house and a low ball offer might not even be looked at. I have room to negotiate for sure if the inspector finds something, though.

The thing is, the numbers work even at the asking price. Sure, I could get more equity right off the bat if I offer less, but with this being my first deal I don't want it to turn into analysis paralysis and then the property is picked up by someone else!

Interesting! I was using the conventional 20% down payment since that's what banks will typically say when I tell them it won't be owner occupied. But thanks for the note!

The property's in Redford. Not a booming market like Royal Oak or Hazel Park but I'm hoping it'll appreciate well enough.

Hello everyone,

New real estate investor here in the metro Detroit area. I've been roaming the MLS for a little while now and think I've come across a pretty good deal in this seller's market. It's only been on the market for a couple days but I think it's going to go fast so I'm considering putting in an offer today.

The house is 3Br/1Ba, 912 sqft. I would classify the house and neighborhood as around C+ to B-. It's across the street from a large field and a K-12 school is about a 2 minute walk down the street. It doesn't have a basement or any potential for adding another bedroom or bath, but the house is overall in good condition. Only complaints my agent and I found were no a/c (it's Michigan, it happens I guess), an older furnace that might need to be replaced, and potentially a need to replace the circuit panel and/or think about the possibility of aluminum wiring since the house was built in 1970. Below are the numbers I've been using for my calculations:

Asking/purchase price: $55,000

Down payment: $11,000 (20%)

Loan amount: $44,000

Interest rate: 5.125%

Term: 30 years

Closing costs: $3,000

Estimated repairs: $6,000 (this is for adding a window a/c unit, furnace purchase and installation, circuit panel replacement, and possibly replacing aluminum wiring with copper. I haven't had an inspection yet, and this would be negotiable with the seller, but I'm assuming to pay for it all myself to be conservative in my numbers)

Total cash in the property: $20,000

Estimated rental income: $800/mo (it could possibly be higher)

Vacancy: $64.00 (8%)

Repairs: $40.00 (5%)

CapEx: $80.00 (10%)

Property management: I will be managing on my own

Electricity: Tenant pays

Water: Tenant pays

Gas: Tenant pays

Sewer: Tenant pays

Trash: Tenant pays

Lawn: Tenant pays

Insurance: $50.00

Taxes: $91.33

Misc: $50.00

Total operating expenses: $375.33

NOI: $5,096

P&I: $239.57

Monthly cash flow: $185.09

Cash on cash ROI: 11.11%

I feel like I have enough of a cushion in my numbers to imagine my ROI will be higher than that, but if the worst case scenario has me getting an ROI of >10%, I'd feel pretty good about it. Are there any expenses I'm forgetting, or does this seem to be a pretty killer deal overall?

Thanks in advance for any feedback you guys can offer!

Hey @Kevin Dureiko!

Welcome to the community. Great to have you here, there's always a need for capital!

Okay, I was not aware of the other low down payment options for owner-occupied investments. Thank you for sharing that information, I will definitely keep it in mind! :)

I was under the impression that an FHA loan WAS the owner-occupant advantage of 3.5% or 5% down payment and low rates. Is there a non-FHA owner-occupied loan option?

And yes, having that boon of using most of the rental income as regular income to qualify for new mortgages is certainly nothing to sneeze at!

Thanks for all the replies so far, everyone!

@Sarah Lorenz That's the general plan. Are you suggesting refinancing with a traditional mortgage on each after two years (if I can put sweat equity in them), pulling out and doing another FHA on the next? That would be an extremely low cost method since I could use a low down payment on each property.

@Morgan Hawthorne I've heard that time and time again; house hacking is such a great method to get started. It's low cost, convenient, and allows for easy hands-on management. Not having to risk all my own money on my first deal would be ideal. I don't want to put down my entire savings on one property starting out and be left with nothing.

@Jimmy Crandall Nice to meet someone who's in the same boat as me! It's difficult to find a good priced property because so few are being built right now. Inventory is very low. As far as how to find my first property, I'm checking the common listing websites like Zillow and Trulia, but will also be enlisting the help of a Realtor to send me regular MLS listings with my criteria and will probably start Driving for Dollars soon.

@Tom Bell I don't have a wife yet but that may be changing relatively soon; no kids and definitely don't plan on having any in the next couple years at least! Even if I'm not personally interested in being in a good school district, I know it can help the value increase if it's in close proximity to good schools. That said, I was looking at probably starting out with B to C class properties since those tend to cash flow the best. I wasn't sure about the "haves/wants" yet because I'm not really all that close to following through with a property purchase yet. But thank you for the suggestion!

Hello everybody! I'm at a bit of a crossroads as far as how and when to start my investing journey, and would like to ask for some opinions as to which road I should take. I understand there is no clear "right" and "wrong" path, but some guidance from people who have been there, done that would be greatly appreciated.

Right now, I'm 25 years old, two years removed from college and have been working full time as an engineer since then. I rent out an apartment and the lease I'm on right now ends May 2018, so a little more than a year from now. I've never invested before, but have really been stepping it up in my education and networking at my local REIA the last few months, so I like to think I have some idea of what I'm doing. I have about $30K in savings available to put towards down payments/other real estate-related expenses, which might be considered fairly sufficient because my market in SE Michigan is quite cheap compared to a lot of the country.

Now, the two options I'm considering: on one hand, I was imagining myself getting started by buying a duplex, triplex, or quad and house hacking (living in one unit and renting out the other(s) to pay the mortgage). I'd do this through an FHA owner-occupied loan, obviously once my current lease ends next May, so I'd be looking to buy something around March or April 2018. I would continue saving up from my W-2 job and have even more funds (likely ~$50K in total) available once that time comes. All of the profit associated with the cash flow, appreciation, and equity would solely belong to me. On the other hand, I'm beginning to form connections with a lot of individuals at my local REIA, like private lenders, buy-and-hold investors, lease option investors, Realtors, etc. With the connections to experienced buy-and-hold investors I'm forming (buy-and-hold single family and small multi-family is my target niche), I could find someone to partner up with and offer them leads, some capital, and maybe add some sweat equity, and in turn learn a lot from them as a mentor in the process. Then we could split the profits and go our separate ways from there. The benefit to this is that I could get started sooner since it wouldn't be owner occupied, so I don't have to wait for my apartment lease to lapse, and the experience itself could be very worthwhile in my education, but I'm wary of starting out with a partnership right off the bat. What if the partnership turns sour with my extremely limited experience? Is starting out with a partnership really the best way to go? How would the profits be split; would the monthly cash flow be split 50/50 for however long we owned the property?

Is there one option that's clearly more advantageous? I'm very torn between the two choices since I was originally banking completely on the house hacking concept, but the idea of starting sooner and gaining a mentor with a partnership is beginning to look pretty good, too. 

Thank you in advance!