Budget question: how much house can I afford?

[Caitlin Caldwell]

Hello all!

My husband and I are just getting started on our real estate journey. We're heavy into research mode and looking to buy our first property in the next few months. Right now we're leaning SFH BRRRR method but also debating starting with a few flips to build our cash reserves. Either way, we'll probably take out a hard money loan for purchase/repairs and then either sell or refinance to a conventional loan. We're also looking to invest in our local Denver area, so definitely not in the cheapest market.

Since we'll do hard money loan to start, how do we decide how much house we should be looking for? If we're planning on BRRRRing, is it just a matter of what our personal DTI can afford on the conventional loan when we refinance at 75% LTV? If we know we'll just flip it, how much is too much? Is it just a matter of finding a HML and seeing how much they'd be willing to give us?

I certainly don't want to get in over our heads, but with the Denver market I also realize it's pretty slim pickings for sub 300k homes. Any advice you can give would be greatly appreciated!

Thanks all,

Caitlin

[Zac Newell]

The first thing I would do is build up significant cash reserves before getting into any type of RE investment.  Having those cash reserves makes that first deal much less stressful.

If you are going to use hard money once you are ready to do a deal I would reach out to some hard money lenders and see what type of loan terms they have.  That would also help you determine which lender you might want to work with.  Alternatively you might look for an experienced investor to partner with on the first deal.  If you are willing to find the deal and do the work you might be able to find someone with the money and experience to act as a mentor on the first one.

I'm no expert on flipping but I would think a good place to start would be near the median home price in the area.  That should give you a large pool of potential buyers or renters.