Newbie to Investing, Co-Buying with a Parent?

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Newbie to Investing, Co-Buying with a Parent?

Sophia Smith
Buffalo, NY · Member since 2019 · 3 posts · 1 vote

Hello! 

I am a total newbie when it comes to real estate investing, but the Bigger Pockets podcasts/community has really influenced me. I am very excited about the possibilities that real estate investing could create for me in the future. I am 22 years old and have recently graduated college (May 2019). Over the last 7 months I have been working full-time at a hospital as a clinical research coordinator. I do not hate my job, it is rather interesting but I as Robert Kiyosaki wrote I am totally "working for money" (thanks Bigger Pockets for the book recommendation). Although I like the stability and security, I am already starting to feel a bit trapped in my 9-5. 

I live in Buffalo, NY and housing is pretty affordable. Many sectors of the city are up-and-coming and there are tons of colleges/universities, major medical hospitals, some professional sports, and factories around. 

So heres my dilemma: My lease is on my apartment is up August 2020 and I'm debating on whether I should rent and save another year (which kills me a bit inside) or invest in a multifamily property and house hack. But, I am fearful and discouraged, as I am unsure if I am in a position to qualify for a good loan. Therefore, I am not sure if it is realistic at this point. Here is my financial situation at a glance:

-Credit score fairly good about 700 to date

-I have saved up a decent chunk of money over the last 7 months

-I have student a good chunk of debt (thanks to college and student loans approx. $29,000), however I am on a regular repayment plan and I can afford my monthly payments.

-My one year of full-time employment is July 2020, although I have worked part-time since I was 15

-I am nervous about my debt to income ratio and how that may look on paper

So I am considering going in on a property with my dad. My dad is looking to get into real estate investing too. He for sure has the means to do it, so I am wondering if I co-invested with him on a property if I would be more likely to get a loan? I know that mixing business and family isn't always a great option, but I am thinking it could a good option in regard to my financial situation. Ideally I would like to find a multi-family house, where I could occupy one of the units and house hack. But, I know this all takes a lot of time and I want to make sure that I really understand the market and everything investing encompasses.I am trying to learn all that I can through books, podcasts, youtube videos, my own searchers, talking to people in the industry and attending seminars, but I am still new to this world.

What thoughts do you guys have? I am working on a shorter timeline like I mentioned, my lease is up August 01 2020, so I am not sure if it is even a realistic goal right now. Would you advise I rent another year? Wait it out, save some more money and pay down more debt, then try for an investment in 2021? Or try my luck and attempt to get a loan, possibly with my dad as an investor too? 

Any advice is greatly appreciated! 

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Timothy Smith
Investor · Buffalo, NY · Member since 2019 · 163 posts · 113 votes
6y

Not financial advice (good stuff covered above), but if you DO get into the position where your current LL wants to know if you are renewing your lease, ask if you can add a "home buying" clause. I did this myself as a tenant, and provide the option to my tenants who express interest in buying a home. Basically, it is verbiage stating that I will release them from the lease early once they provide a commitment letter from the bank. I do this because I'm passing on the goodwill that was extended me, making the tenant more at ease about signing a long-term lease, and I firmly believe that more owner-occupied properties in our up-and-coming Buffalo neighborhoods is a good thing. 

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  • Tim DelaneyPro Member
    Buffalo, NY · Member since 2018 · 790 posts · 530 votes
    6y

    The best way to find out if you qualify for a loan on your own is go talk to a bank. M&T has a good first time homebuyer program, or someone else just told me that Bank of Akron is very friendly to RE investors. Evans, Alden State Bank, and Five Star are also worth checking out. It doesn't hurt to ask them specifically about your D/I ratio.

    If you are moving in you would qualify for an FHA loan with 3.5% down and that type of loan allows you to count your planned rental income into your income so that would greatly improve your ratio. From my understanding conventional mortgages do not always count rental income.

    If for some reason you won't qualify yourself and you want to work with your dad just make sure you have written agreements so everyone is on the same page.

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  • Kyle A.
    Rental Property Investor · Buffalo, NY · Member since 2017 · 56 posts · 21 votes
    6y

    Do the first time home buyer program if they still offer that. It's free money. House hacking is the best way to start out at a young age. Just make sure you understand and appreciate all of the work that comes with maintaining a house. If you are in Buffalo for the long haul, you feel your job and pay are steady, and you feel ready to take on that responsibility then yes I think it's a great idea. Just be sure to buy in a nice area or you will have a really hard time finding good renters. If you feel like you have to settle for an undesirable area because of the high prices then maybe save up for another year. In investing, you make your $ by buying right so do your research. Good luck to you!

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  • Jon Lilley
    Rental Property Investor · Buffalo, NY · Member since 2018 · 14 posts · 2 votes
    6y

    I second both of the other previous posters. First step would be to contact a bank to see how much you would qualify for, start with M&T and the extra leg work for the first time buyer's program is worth it if that's an option. Live in an area you can not only afford, but can see yourself living in for several years and take the plunge and buy a double. The bank will help you with concrete numbers on what your payments will look like, but most often your out of pocket per month if you have a tenant for one of the units, and one or two roomates will be less than it would cost you to pay rent each month. You just need to make sure you not only have enough money for the 3.5% downpayment for an FHA loan, but also some money in reserves in case something goes such as a hot water tank or other issue. I house hacked when I was broke and in college, but I made the place beautiful over the years and sold it for a really nice profit when I outgrew it. Don't wait if you have the money, but do your due diligence starting with the bank first.

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  • Calvin OzanickBusiness Member
    Property Manager · Janesville, WI · Member since 2017 · 708 posts · 297 votes
    6y

    Your first step is taking action. Reach out to 3-5 lenders and ask if you qualify. Get some terms and decide if that is an option for you. The best way to get over the hump is to starting taking concrete steps. This way, you won't be thinking "I wonder if this works" instead you will know if it is an option for you. Another option would be to begin looking for a month to month lease when your current lease ends. This would give you a bit more flexibility. 

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  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    6y

    Another vote for go to the bank and see how much you can borrow as your first step.

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  • Timothy Smith
    Investor · Buffalo, NY · Member since 2019 · 163 posts · 113 votes
    6y

    Not financial advice (good stuff covered above), but if you DO get into the position where your current LL wants to know if you are renewing your lease, ask if you can add a "home buying" clause. I did this myself as a tenant, and provide the option to my tenants who express interest in buying a home. Basically, it is verbiage stating that I will release them from the lease early once they provide a commitment letter from the bank. I do this because I'm passing on the goodwill that was extended me, making the tenant more at ease about signing a long-term lease, and I firmly believe that more owner-occupied properties in our up-and-coming Buffalo neighborhoods is a good thing. 

    2Reply
  • Adam Wigdorski
    Rental Property Investor · NY · Member since 2017 · 132 posts · 90 votes
    6y

    @Sophia Smith

    As everyone else mentioned, I would go all the local banks and see what they offer. I’d also check out premium mortgage and bank of Akron as well. For fha it should be pretty much the same across the board.

    If it was me. I’d find a nice 4 unit to house hack. Live in one unit and rent out the other 3. Which are most likely already rented.

    In a couple of years cash out refi it to a conventional loan and buy your forever home again with an fha. Instead of your dad being on the mortgage he can give you a one time “gift” to help with the small down payment. They would just need his financials and motorized letter of the funds. Joel mahakian at premium is pretty good.

    I wouldn’t worry about anything until you go to a lender and see what they offer.

    Once they give you your limit then begin the hunt.

    Bank of Akron is a portfolio lender so they have more liberal lending products. I’ve always used Paula Kay from the Lancaster branch.

    I’d definitely go after the 3-4 unit. Only time your going to be able to get one for almost zero down. Especially if you go full sellers concessions in the offer.

    Doubles are done a dozen and after you get rolling you’ll be able to buy plenty of those

    1Reply
  • Khaled Morad
    Lender · Tampa, FL · Member since 2018 · 422 posts · 210 votes
    6y

    I think you’re in a great position to accomplish your goals! You’re ahead of most people your age. 

    One thing I’d add is once you have your budget, find a good investor-friendly agent and start looking at houses. It’s not too soon, because this way you can learn what is really out there (pics are deceiving). You can begin to understand neighborhoods, layouts, what $100k looks like vs $150k, etc. 

    0Reply
  • Sophia Smith
    OP
    Buffalo, NY · Member since 2019 · 3 posts · 1 vote
    6y

    I genuinely want to thank you all! Your responses provide me a lot of comfort and it seems like everyone agrees on the next step(s), which puts me at ease. I am going to pursue the advice you all have given me. Thank you again for taking the time to respond and shed some words of wisdom. You all have truly helped me out! 

    Best, 

    Sophia

    0Reply
  • Timothy Smith
    Investor · Buffalo, NY · Member since 2019 · 163 posts · 113 votes
    6y

    @Sophia Smith

    Are you looking for turn-key, or willing to do some rehab? Any turn-key 4 units around here are going to be a premium, and won't offer the maximum equity build that a rehab will. But, there are plenty of opportunities if you are up for a significant rehab. There are also several lenders that offer rehab loan products. You may not get as good of a deal as you would with BRRRR, but you get your foot in the door and can start building equity, along with house hacking.

    2Reply
  • Ashley KehrPro Member
    Rental Property Investor · Buffalo, NY · Member since 2017 · 208 posts · 186 votes
    6y

    I think its awesome you want to get started so young! You can definitely do it especially in the Buffalo market. My sister purchased her first duplex at the age of 21 right out of college with only a job offer. She did an FHA loan where she put 3.5% down. I actually partnered with her on the deal. I gifted her the down payment and closing costs (your dad could do this). The FHA mortgage would be in your name and the deed would be in both of your names. It has worked really well for us. My sister is living for $45 a month in a 2 bedroom apartment and her tenants are building equity in our house. We split all repairs and when she moves out we will split cash flow. This beneficial to your dad too because if he purchased a property he would most likely have to put at least 20% down and this way he becomes part owner with a small cash investment.

    0Reply
  • Brittany Gary
    Investor · Portsmouth · Member since 2018 · 8 posts · 0 votes
    6y

    Congrats on looking to get started. I'm just starting myself and looking for a multifamily home to house hack in the area. What parts of Buffalo are you looking at? Im shooting for the area around Dyouville or Tonawanda (where I live at) but im not from the area (I moved there in 2017) and I'm trying to figure out the best area to focus in. 

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  • Matthew Irish-JonesBusiness Member
    Real Estate Agent · Buffalo, NY · Member since 2017 · 2k+ posts · 2k+ votes
    6y

    @Sophia Smith many said it but FHA is the best way to go. Most people that are on here started with an FHA loan and continued building from there.

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  • Sophia Smith
    OP
    Buffalo, NY · Member since 2019 · 3 posts · 1 vote
    6y

    Thank you again to everyone who has recently replied to this post! You all have been so helpful and I am really excited about the advice I have received. Currently I rent in Elmwood and I love living in the village! I would love to buy a piece of property here, but Elmwood is starting to get increasingly expensive so I am not sure if that will be realistic. I am not opposed to buying a property that needs some work, but in that regard I am only looking to fix cosmetic. I will still be working my FT job so I really do not have the time, nor do I have the knowledge to do a full flip. But, I am really interested in flipping in the future! I am hoping that buying property near any of the universities or just right outside of Elmwood/Allen would be a good investment (thinking that eventually these areas may become too expensive and push people a little farther out), but if anyone has any thoughts on area let me know! I also did not grow up here, I am from Albany. I lived in the Falls for 4 years for college (but frequently came into Buff) and now I live in Buff and love being here! 

    Does anyone have any advice as far as pre-approval? Since I am so new to this, I am not sure if there is a "better/smarter" time to get pre-approved. As tax season is right around the corner, is it better to wait until after I file? Also, I am suppose to be getting a raise at work. It is only a 2% salary raise, it really doesn't make a huge difference but wasn't sure if it is better to wait. 

    1Reply
  • Khaled Morad
    Lender · Tampa, FL · Member since 2018 · 422 posts · 210 votes
    6y
    Originally posted by @Sophia Smith:

    ... but if anyone has any thoughts on area let me know!...

    Does anyone have any advice as far as pre-approval? Since I am so new to this, I am not sure if there is a "better/smarter" time to get pre-approved. As tax season is right around the corner, is it better to wait until after I file? ...

     Sophia, think about where you would want to live now as a student. As a recent graduate, you have inside perspective you can utilize. Where is convenient? What area is too far or too sketchy? I'd also suggest checking out Black Rock and or University District--where Hertel hits Main St.

    As far as timing, I'd start now so you can begin looking and getting serious. Small steps will help you build momentum making your goals more attainable with each step. They will ask you for recent paystubs and last two years' tax returns most likely. Waiting until this year's tax return will not have that much effect. You can always update your information and will actually need to if/when your pre-approval expires.

    Get your pre-approval process started so you can begin looking to learn what types of properties are realistic, what areas/properties are not what you thought they were, etc. After exploring a few listings you will begin to read the nice photos/descriptions more critically and hone in on what you really want/fits your goals.

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  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    6y

    @Sophia Smith

    I would look to see if you can borrow the money from your dad to purchase the house.

    You owning the house would make a lot more sense tax wise.
    I.E. Section 121 on a portion of the house that is your personal residence.

    It also makes the whole transaction much simpler.

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