Strategy to start in Houston

[Tristan S.]

Hello everyone,

I currently live in Houston, my lease is up in february 2016 and my wife and I plan on making a move before then.

We do not have 20% down for a place that we would like to live in (2 bedrooms) which would cost around 200k. So I thought about the following strategy :

Buy something around 100k for a one bedroom using a FHA loan, maybe improve it and keep saving towards our 20% down. Follow opportunities closely until we find something we'd like. Get the second place using traditional financing and rent the first one. Hopefully staying less than a year in the first place.

The other possibility would be to rent for another year and keep saving but I don't like the fact that the lease would get us stuck and most likely make us miss deals.

What do you guys think ? Is FHA financing a smart idea for the situation ? Should traditional financing be used for the second place or FHA as well ?

The long term plan would be to keep acquiring other renting properties.

Thanks for your help.

[Brianna H.]

Originally posted by @Tristan S.:

Thanks @Brianna H. for the answer. I was not aware of the one year limit for the use of a FHA loan, that shouldn't be an issue.

I was talking about one bedrooms because we are looking at townhomes/apartments in the galleria area or even in the loop and that is what we could get for a budget around 100k. That is where we want to be because it is close to work. So even in the galleria, one bedroom units does not receive much interest from future tenants ?

Do you know any good realtor investor you could recommend ?

Are you personally using FHA loans to acquire properties ? Do you ever refinance ? (why would you ? it would mean locking more of your own money into the property, wouldn't it? )

Thank you.

 I am not very familiar with inside the loop, so that would be a good question for a realtor. How long have you been looking at townhomes in this area? Are there a lot of rentals listed? Have you done a market analysis? A realtor will be able to get you the sales comps/rental comps for the area to assist in your research. One thing that really turns me away from townhomes/condos is the mandatory maintenance fees attached to it. You will easily spend $250/mo in maintenance fees. Have you thought about this?

I just did a quick search for the galleria area and analyzed one place. (2121 Fountain View Dr)

LP: $85k (5% DP, 4.5% interest - $400/mo)

Taxes: 2.5% on $45k ($1125 - $100/mo)

Insurance: assume $100/mo (I have no idea what townhome insurance rates are, but you can get quotes before you buy)

Mandatory maintenance: $300

Vacancy: $100/mo (based on monthly rent of $1200)

Repairs/capex: $100/mo (Built in 1968, I would expect to make some repairs)

Management: $120/mo (10% of $1200)

Total monthly expenses: $1220

In the same area, I saw a place listed for rent for $1200 (824 sqft), which is $1.45/sqft. The house I analyzed is 660 sqft, which would mean you could rent it for $960 which all things being similar (I didn’t check this too detailed).

This is just a super quick calculation that doesn’t really have a lot of basis behind it, but this is exactly the reason why I avoid inside the loop and why I avoid townhomes/condos. The mandatory maintenance fee is a killer! I’m not sure what all the maintenance fee consists of so you might be able to get away with not setting money aside for repairs, but it still looks like a horrible deal.

I can send you my realtor information if you are interested. He is an investor himself and he deals with a lot of investors.

Both my home loans are FHA. They offered the best terms in both situations. Refinancing has many different purposes. Most people refinance to take advantage of a lower interest rate and reduce their payment. You can refinance and get cash out from your home if you have enough equity. My primary mortgage was originally at 5.125%, 30 year. I refinanced into a 15 year at 2.9%. I'm only paying $100 extra per month and I reduced my loan in half (I refinanced after 6 months). I bought a foreclosure and they would only let me get this particular loan with the house and I knew right away I didn't want those terms.

Just keep in mind that it is a lot harder to refinance a home if it is not owner occupied. You will need more equity in the home and the interest rate will probably increase, that is if they agree to refinance in the first place. I hope that helps a little!