Where to start? BRRRR? Flip? Value-Add?

Question

Thanks ahead of time for anyone who takes the time to offer any advice.

I am new to real estate investing in terms of not owning any property, though I have been pretty well immersed in real estate books and podcasts for the last two years or so, trying to front load as much knowledge as I can.  My wife of 7 years and I (and 2 year old daughter) are now looking to move away from renting and purchase our first home, though it has to make sense from an investment standpoint (we don't want to just buy a house for the sake of it).

My original plan was to house-hack, though I have come to the realization that I probably will not be able to qualify for, nor can afford, the price of a duplex.  I was originally all in on cash flow, but have somewhat shifted recently into building liquid capital.  I currently have a lower income and not a ton of capital, but my income will be steadily increasing by 20%+ every year for the next few years, but need to accumulate capital in that time.  I am not sure what the best strategy for doing this is.  My thinking was to buy a home that I can add value to/ flip, but is in decent enough condition that I can live in it with my family during the process.  I was thinking something that needs cosmetic work and an unfinished basement or garage to add a bedroom and bath.  I'm pretty handy so I would plan on doing a lot of the cosmetic work myself.  I would love to do a full on flip with contractors doing it all, but as a first time home buyer with no experience, dealing with that seems daunting.

Any unique ideas out there or thoughts and advice would be greatly appreciated.

Lawrence Potts · Answer

@Parker Vaughan

Hey Parker! Love the question. Best thing to do is take action. Like mentioned earlier, your first deal doesn’t need to be a home run.

My wife and I bought our first home in 2019. SFR 3 bed 1 bath for $185k because that’s all we could afford in a not so great part of town. We didn’t househack it but we were house poor and I worked full time and start a side hustle to keep us afloat. Although I don’t recommended it being house poor, it got us to first base. I had no skills and no experience outside of working drywall hanging for a few years. I learned a lot about plumbing, electric, flooring, paint, appliances, finish carpentry, landscaping, etc. If it weren’t for that deal, I wouldn’t have been ready for our next deal.

We sold that house after a year and bought a 4plex. We had just enough equity for the down payment and around $20k for rehabbing. It needed a lot of work and I couldn’t afford to hire out all the work, so I had to do most of it myself. That deal was the home run. Bought for $297k, put 3.5% down and rolled the closing into the mortgage, put $20k in rehab, and refinanced it at $505k.

My suggestion is to try something and see if that’s a model that works for you. You and your wife HAVE to be on board TOGETHER. She may say yes but if she hasn’t walked the house and hasn’t been around that environment (living in a construction zone), that won’t fly.

The easiest way to start is owner-occupied. Look into your city/county codes to see what it’d take to convert a big master into an ADU. Or convert your garage. Or find a house on two tax lots and sell one of them. Or build on it. Park an RV on the lot and AirBnB it. Or you can wholesale or wholetail (don’t know if it’s “tail” or “tale”). There are so many things you can do, it’s hard to go wrong. But nothing will happen without action.

Hope that helps! Keep asking questions, we are all here to help each other out!

Parker Vaughan · Answer

Thanks Daniel, I appreciate the response.  If I was living on my own and didn't have a wife and daughter, I don't think I would have any problem with a single family home and renting out rooms, but that doesn't seem feasible with a family.  But I appreciate the advice on just waiting to accumulate funds, all it takes is patience I suppose! Thanks again!

Joshua Janus · Answer

@Parker Vaughan Is a house hack a goal of yours in the future? Study the requirements for an FHA loan like a book and make sure to set yourself up for success. Examples would be building up your credit, getting the most recent tax returns for the last 2 years in the same field, building up capital for the down payment, closing costs and 6 months in reserves so you can use as much of the rental income from the other units as your own income when you getting qualified. These are some barriers I had to make sure to be able to climb over.  Let me know what questions you have.

Daniel Somers · Answer

Each situation is different, but house hacking is a great way to start and gain experience as well. Your first property doesn't have to be a home run. My first property was a single family house that I house hacked and had friends renting off me. I gave them cheap rent and basically came out even for the month, but it covered the cost of the mortgage. So even something like that I was able to save a lot quicker because I had no more rent or mortgage payment because it was covered. So I would probably focus on getting enough funds for your first property, then if you house hack it like your original plan, you can save a little more each month and build more capital from there. Hope this helps!

Where to start? BRRRR? Flip? Value-Add?

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