Getting Started in Real Estate with FHA loan

[Preston J flores]

Hello all ! My name is Preston and I just graduated college and start my full time job next week. I want to get into real estate as soon as possible and will have a decent amount of money saved up by the end of the year and was thinking of house hacking a duplex - quadplex using an FHA 203K so that I can do a little renovation in order to refinance after a year or so and hopefully get some if not all of my money back.

Was wondering if anyone had some tips for me or other ideas I should consider. Also open to book and podcast recommendations  !

Thank you,

[Ray Rivera]

Hey Preston,

First and foremost, congrats to you on making the decision to jump into real estate investing and, for doing it in a way where you will provide a roof above your head, and, build some cash flow & long term wealth. I will say, I wish I knew what I know now 10 years ago. . . .

With that said, here's what I would look out for if I was going to house hack utilizing a FHA 203k loan.

1. I would start with the end in mind. What's my goal? Acquire a roof above my head with minimal expenses? Am I looking to collect a certain amount? Am I looking to secure said property in said location for long term appreciation? These questions need some solid answers so you know what to look for and where to look for it, and, with what metrics.

2. I would then get myself familiar with do FHA 203k loan product. In my market (note: I am a licensed real estate agent in Richmond, Virginia) an FHA 203k product works in two ways. The first (streamline) doesn't require additional inspections because the rehab budget quoted by the GC (General Contractor) meets or is under the allowable threshold ($35k). The second one will require additional inspections from a 203k HUD Consultant since it surpasses the $35k rehab budget and/or has structural items.

3. Now, I would get acclimated with the local real estate market where you'll like to find said home. Learn what a duplex will run you. Additionally, look at tri-plexes & quads.

4. As you're doing #3, I would also familiarize myself with rental figures. What does a 1 bedroom rent for? What about 2 bedrooms? Is there a way to increase the rent? Any possible value ad's that people are paying top dollar for?

5. Once you know what #4 is, you will know what the ideal property looks like. Now it's time to jump into an aggressive search.

6. Once you identify said property, call your go to General Contractor. If you don't have one, ask your agent for one. If you don't have an agent, ask here on Bigger Pockets and/or tap into any good resources you have. Finding a good GC is hard but something that is absolutely detrimental to your success in investments.Your GC will and should provide you figures on what it'll cost to rehab this property. Be aware, material cost can be fixed, labor not so much. Therefore, call 10 GC's and you'll get 10 different prices on the same job. You never want to hire the cheapest as the cheapest inevitably becomes the most expensive (learn from my mistake on this one please). Last point here, accept that at first you'll be slow to act/learn. So you won't be able to calculate the figures so quickly, but you want to get out there and practice to build the speed. You also want to be open with your GC that you won't "jump" on just anything, but when you do, he will be guaranteed to get a call from you for his troubles. 

7. Now sir, it's all just a numbers game. Find the properties, get rehab estimates, talk it over with your lender to get you accurate figures on the loan (ask for a fee sheet) and what that will look like for you once you move in (PITI). With those numbers and your research on rentals, you will quickly know whether it's a good deal or not.

8. If buying for appreciation you will need to learn how to pull comps accurately. Starting out, your real estate agent should be able to help you with that. It's called the ARV (After Repair Value).

Good luck on the house hack sir and hope you a very successful venture &, new home!

Note: The GC will be required to be licensed and insured. Additionally, they also have to be approved by your mortgage lender. So if he/she has never done a 203k loan renovation, they want to get on that ASAP. A good lender should be able to assist your GC in getting that squared away.