New investor starting with duplex househack

[Nicholas Almgren]

Hey BP community!

I'm 26 years old and I'm in the beginning stages of real estate investing where I'm reading every book I can get my hands on and the fire is lit! I cant believe I have waited so long to get into real estate investing. At this point I am still learning but I would like to pull the trigger on a duplex for my first investment by house hacking. My fiancé and I will get an FHA loan with hopes of only putting 3.5% down. We currently rent an apartment and are pretty tired of just paying off someone else's mortgage and so we want to start making our money work for us. We work full time jobs and both go to college full time ( I'm almost done). The goal is to start small and then invest in more multi-family homes (over time ) via house hacking each property until we can pyramid up into commercial apartments and eventually purchase our first home while generating passive income from our rental properties( we will continue to work in our current professions). I know its not that simple and that there is more that comes along with real estate investing but that's my vision.

A couple of questions I would like to ask are:

-how much money should you have in an emergency fund before jumping into your first multi-family investment? To be honest we don't have a stock pile of money lying around, we are budgeting for the 3.5% down payment. We would like to find a duplex that is in our price range to where the monthly payments will be close to what we currently pay for rent now just in case of tenant vacancy. We live in Happy Valley Oregon where selling prices are high and even higher in Portland Oregon where most of the duplexes are located. I have caught the "real estate bug" where I just want to jump in but I also know how rushing into an investment can take a turn for the worse. Which leads me to my last question which is should I wait to save more money and possibly even move to a somewhat better market( state) where prices aren't so high? Living here and investing here gives me the advantage of knowing the area but at the end of the day it takes money to make money in regards to my first question about an emergency fund for future repairs a property will undoubtedly require. I'm in the process of buying " The book on investing in real estate with low and no money down" I'm sure I will find more answers through reading that book and others but I am ready to get started and thought I would ask the Bigger Pockets community for advice. Thanks for your time! I look forward to your responses.

[Conor Hesch]

Hello @Nicholas Almgren you have a great idea !  (that's exactly how I felt and what I did).  I'm from MN but made a connection with @Randy Johnston because I have a close friend moving to Portland next month and wanted to find a local agent who is passionate about the type of stuff I am into (I am a duplex / househacking / investing geek - I can't get enough of it). 

Here is what I would do if I were you (ps it doesn't work in every state but it works in Portland I checked it out)

1. Buy a Duplex. Use the loan that I just used to buy my first duplex in MN: Portfolio-Conventional Loan with only 3% Down Payment and NO Mortgage Insurance (yes this loan really exists). This will make your monthly payment way lower than an FHA Loan. The only loan other than this that I know of that would allow less down-payment would be a Veteran Loan (Vets only).
2. Don't start with an FHA Loan, instead use it for your 2nd Duplex...because the 3% down Portfolio Conventional loan that I used requires that you do not own any other homes at time of closing. So start with that one, then move to a 3.5% down FHA. Once you have an FHA loan you are not allowed to have another FHA loan unless relocating a great distance for work. FHA does not mind if you already have another home as long as it is not already FHA…make sense?So if you follow that order you can maximize your options.
3. Now that you have exhausted your Low Down Payment Options (Portfolio-Conventional and FHA) you will need to use a Standard Conventional Loan and put 20% down to get your 3rd Duplex.
4. The sky is the limit...you could continue to buy properties and build an empire or just stop there and enjoy more free time...I have friend who quit his job and just manages his properties now.

Be alert, if you time it right you might be able to get down payment assistance/grants (I got $5,000 from a local program and used it to buy my interest rate down to 3.125% which is way below typical market rates for a Duplex). There are also many down payment grants for first time home buyers in various cities around the US. My Duplex total payment = 1,480 and the lower level pays me 1,200 while I live upstairs. When my girlfriend moves in she might pay 280 and then I will be saving for my next duplex

Keep in mind that this 4 step process I outlined takes time (anywhere from 1 to 10yrs depending on the person) so keep the big picture in mind but don't let it stress you out too much. Send me a message if you have any more questions or need specifics and keep us posted on your success! GOOD LUCK !