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Updated over 8 years ago, 08/01/2016
Confused newbie in Tacoma market
Hey everybody! I'm a first time buyer and looking to do a buy & hold. The ultimate goal is to find a home that's livable for my wife, son, and I, with an extra room or two we can rent, and then in 2 years, look into renting that home out entirely and purchasing a multifamily or second home. Rinse and repeat.
I'm looking in the Tacoma area, but everything decent I'm seeing listed is pending within hours. My realtor states that summer in this area is a seller's market, and any good listing will have several offers above asking, within hours of listing. That makes sense, but I'm also seeing that from the opposite side of the coin. If I'm a seller, I'd be listing in summer. So as a buyer, wouldn't that narrow my options if I wait until fall/winter?
I'm trying to do a zero down loan, but the lender is dragging their feet and (IMO) being fairly unprofessional by continuously asking for more information every couple days, and pushing things back. I was approved quickly by another lender, sent quotes and pricing sheets, etc. but was told by several realtors that they'd never heard of the company and not to trust them (???)
I initially considered the potential of a property that needs some work, but I have ZERO experience rehabing, dont know many contractors (I know one plumber and one electrician), and have never really done any construction work. I think I might be putting myself (and my family) in a bad situation going that route.
I would love any feedback, resources, articles, or advice that any of the more experienced investors here could offer me.
Should I wait till the fall/winter so the market isn't so insane? Or am I just letting good deals pass me by?
Are there any other investors/flippers in the Tacoma area that wouldn't mind me picking their brain and asking questions?
Should I go with the lender that got me approved right away, or is that asking for disaster during closing? I've heard lots of horror stories about deals falling through because one or two items were missed.
What do you guys think?
@Jay Walker Good job in terms of your thinking process of what you want to do. Now let me tell you NEVER (unless you get an awesome deal) as an investor buy in a sellers market because you will always be competing with a bunch of people trying to buy the house to live in it forever, you are trying to make a profit so you need to buy when noone wants the inventory and hence you can negotiate price and get the best deal, we buy when prices are low and sell when everyone wants to buy not vice versa..On the flip side houses go on the market every single day regardless of low or high season so i would say deff wait for your low season. Second of all i wouldn't suggest you going with an unheard of lender as that could cause problems like you said at closing so just stick with a trusted lender even if that means some extra headache. I would not recommend you get a house that needs alot of work before you learn abit because some things like flooring bathrooms etc you wont know how to properly evaluate the cost of repair without a tiny bit of experience so if you want to do that i would suggest learning from someone or going and finding out all the different price ranges for the following: kitchens, bathrooms, tiles, hardwood, plumbing, elect, roof, AC, carpet. Then maybe think of getting into that. Again dont ever think you are letting good deals go because they may seem like a good deal and you go in and you find yourself in a bidding war and one thing leads to another and you get the property for way more then you wanted and end up with a crap deal in the end.
Best of luck in the future
Thank you @Bishoy Girgis. Yeah, common sense keeps telling me that in ANY investment the main point is to buy low and sell high. So buying when homes are pending within 4 hours of listing (and often for well over the asking price) seems to be counter-intuitive.
I'll try to stick it out with this (annoyingly difficult) lender - as your advice is synonymous with what a couple of different realtors have told me. Plus, they're the only lender offering zero down programs through my state. At least, that I've found.
It makes more sense to me to just go with a zero down loan and save the money we have for any sudden emergencies, repairs, etc (or towards our next home in a couple years). The difference in monthly payment between zero down loan and FHA with 3.5% down is literally only a few dollars per month.
I think you're right on not buying a "Fixer upper" for my first home, especially when my family will be living there with me for a couple years minimum. Little things like some paint, or maybe a functional kitchen/bathroom that's just ugly and outdated would be fine - because we can always do basic stuff as we go (or paying for renovations on a single room wouldn't be so astronomical and could help us learn).
It is tempting though - as there are a LOT of properties in my area for $100-120k and I could easily just get on a 203K loan and have 40-50k to hire contractors. But again - may not be the safest bet for now.
Thanks for your response. All excellent points.
Wishing you luck down there in Tacoma Jay! I'm a newbie up in Snohomish county. Great advice from Bishop Girgis!
Jay I do agree there will always be a deal and buying in a sellers market may not be the right choice. In regulates to the zero money down is this a first time home buyers program? If so there are other lenders you can use. Message me if you would like a referral! From past trends we all anticipate the market to some what slow in the fall and winter. But yes it is very difficult to buy off the MLS in Tacoma right now.
Very true, Justin. This is my first venture into seriously looking and I couldn't believe it when I asked the realtor to go look at a house that just posted, and by the time they responded several hours later, it was already pending!!!
How am I supposed to get in a good walk-through and really feel out the deal?? lol
Yeah, I'm working with Guild Mortgage, who is the most local lender that works with WSHFA to do the zero-down, first time buyer loans.
We could have ~ 3.5% down payment by late fall/winter, but like I mentioned, it would only make the difference of about $8-12 on the monthly. Being that it's our first home, and I plan to buy another in a few years and rent this out, I don't think that'll be too big of an issue if I can find the right deal.
We're also planning on renting a room while we live there to family or a friend. So with the cash we've saved, when it comes time to look into another home, I'd probably refi out of the zero down, give them their 3.5%, and get that first house into something with a lower monthly - then use any other money (hopefully equity) towards a bigger down on the second home (hopefully over the course of 2-3 years, we can save up enough to just do a conventional loan and not worry about PMI, etc)
Maybe rinse and repeat. I have a really good friend who works for a developer. It'd be nice to look into buying land and having a duplex or triplex built through them one day. Hopefully at that point we'll be in a house we like ourselves, and can just do that for positive cash flow.
I dunno if that's the best strategy, just what I've put together from my research. Open to any opinions from more experienced investors!
@Jay Walker Have you considered buying an owner occupied duplex on this first purchase as opposed to competing with other buyers on single family homes? If the goal was to rent some bedrooms out, you could likely find a 2 bed 1 bath each side duplex and get the same if not more for renting the other side of the duplex. You wouldn't be competing with other owner occupant buyers since most duplex buyers are investors, so while still competitive it wouldn't be as crazy and at least it would get you into the market.
I don't so much care what the overall market is (buyer vs. seller) when I buy my properties, I focus more on what is the return on investment and since rents are at an all time high and interest rates are at an all time low, the price really doesn't matter if you can get a super good return (which is still possible). I do intend on keeping all of my investments long term for retirement income, and instead of selling I just increase the value and then get lines of credit so that I don't have to pay taxes on a sale or deal with a 1031.
Another thing to consider is the zero down program, while it's pretty good for first time buyers, sellers and listing agents don't like it. They take longer to close, and there is always the risk of the state running out of funding (which I've seen happen). You may want to consider either a family gift and go for the FHA loan or wait until you've saved enough for FHA.
If you don't want to buy a duplex now, or if the WSHFA won't work on multi family you could always reach out to some flippers who would want to presale their property to you so they don't have to wait until it hits market. If you could find someone who would do that, you could get an offer signed around while they were still working on the house, get the loan process started and have the lender pre-order the appraisal and do an appraisal reinspect just prior to close. It would save the flipper probably 2 weeks so that could be a win-win. I've done this before and it worked great.
Best of luck to you!
Ditto Justin Peila and Jennifer Beadles in regards to going for a duplex and also that there are other lenders. I've never heard of Guild lol. What was the company folks were saying might be a scam?
We did Evergreen and we did the down payment assistance program. The great thing about Evergreen is they do loans the way they SHOULD be done. They underwrite before you even go make an offer so that you know down to the penny what your top budget is. Not like most loan places who just take your income and calculate it against your credit report and some verbal back-and-forth about "household expenses" giving you a "pre-approval" amount that is usually WAY off which leads to the good old stories of sitting at the Title office ready to sign and you get the "oopsie" phone call saying you actually have to come up with $X,xxx.xx amount more to close - happens all the time.
Another thing we found out the hard way was that not all lenders are the same and you can actually shop around. Some lenders charge more in regards to fees and such.
Back to duplexes - what i've seen on MLS lately seems like they are a dime a dozen. If you can get into one with low or no money down it would be something to think about. It would eliminate the hassle of moving people in with your wife and child. Don't sacrifice your peace of mind for this business. The beauty of real estate is there are usually several ways to accomplish an overall goal.
Thanks for the feedback! Very good points!
The other lender I spoke with was Clear Choice, who was actually really prompt and professional. The lender sent me fee sheets and even a pre approval letter for a place I was interested in.
They weren't as extensive on requesting info - guild asked me for TONS of stuff like college transcripts, prev address verification, bankruptcy discharge, etc.
While it's annoying, I'd rather have that done up front instead of going to closing and getting that "oops, we need all this to close"
I'd love to get a duplex actually!
Zero down lenders refuse to work with multi family though (from what I've seen).
Also, many are either out of our price range or in areas we don't necessarily wanna live in.
I'm trying to keep that option open though
Second question - if there was a duplex with an existing renter, is there a way to get the bank to factor that in so that I can "afford it" on paper?
To elaborate - I can't put my wife on the app, so were limited to my income/DTI on the loan. That puts some tight restrictions on the amount I can be approved for. I'm not thinking I'll be approved for much outside the $150-180k range.
Which means duplexes in Tacoma are out haha...
But if there's an existing renter who pays, say $1000/mo, and the monthly would be $1500, is there a way to show that to the bank?
Or do they have to prove that id be under DTI completely on my own?
In what we have experienced lenders will only allow you to use rent as income if you have been a landlord for more than a year. This may not be the case for every lender.
I have never heard of Clear Choice - but for Guild all of that sounds normal except the college transcript unless the down payment assistance program you are applying for requires that. There are more than one program - it depends on which one they are trying to qualify you for.
We messaged you another lender recommendation too if you need it
@Jay Walker My experience buying houses started with just what you're doing - only I bought duplexes. Lenders in my area (NY at the time) DID count rental income toward your income so that you could afford the house. In my area that was an extra $900/month. I believe it's possible they will count this income even if you do not have tenants already in place, but I'm not certain.
I don't think living in a fixer upper is a bad idea, unless you're talking major work. A lot of houses are live-able, even if they aren't perfect. You could go through and update one room at a time. What better way to learn how to rehab??
There are lots of articles on here, and podcasts, about "house-jacking." Have you seen them? I think they are super smart and a terrific way to get started. I wish you the best!
Thank you for the referral Justin. I'll wait and see what Guild says - we've both put in a lot of effort so far and I'd hate to just toss that aside and start over. Unless of course, they can't put it together or make me a garbage offer :)
I'm gunna read more on house hacking. Regina, if I can get the bank to see a renter in the duplex and factor that into the DTI they use somehow, I'd be golden!
I'm not against something that's just a bit dated and needs paint, carpet, etc. We can paint and do very small jobs. Carpet (or even laminate or hardwood) isn't terribly expensive, either. So yeah, anything that's "livable" as is, and a good deal with potential. I'd actually enjoy that.
Duplex is still where I'd love to start, I just think it'll be difficult (read: near impossible) to find one in our price range (read: what the lender will loan me). Still going to look for ways to make that happen!
If not, I think I will get in touch with a guy I know who has done some flips previously and ask him about the pre-sale idea. That's a really good idea I would've never even thought of!
Also - just to put it out there - I should clarify that my wife and I would not just be renting out a room to any old person off of Craigslist, we have numerous friends and family that we could rent to (even after we move out!)
