Am I being prudent or scared?

Question

Hello BPers,

I'm brand new to the forum, and just began seriously considering real estate as an income stream during COVID when I was at home and bored.  A friend of mine introduced me to wholesaling, and I've begun researching that along with renovating houses (I bought Estimating Rehab Costs by J. Smith).  Wholesaling doesn't exactly grab me, but I'm happy to continue to research it as it is quite interesting.  What I am interested in more would be buying a fixer upper, renovating it, and then flipping or renting it out, but COVID has severely reduced my hours at work, and thus I can't continue saving that much for the cash that would be required for the house (I'm not experienced enough for hard money lenders to risk a really high interest payment either).  My friend then introduced me to an FHA loan which really peaked my curiosity.

A little background on myself, and things I'd like you all to consider in helping me with my decision.  I live in Miami.  I work as an airline pilot for a living, and in non COVID times, I do well financially, but right now, due to cutbacks, I'm breaking even at the end of the month.  Come September 30th, the CARES money that all the airlines got ends, and that's when they'll inevitably start furloughing.  While I'm confident that I'll still have a job, I could be making significantly less.  This matters because with the FHA loan I'd be looking to get a 3/2 and rent out both of the rooms, but worst case scenario, I want to still be able to afford the house if I can't get the rooms rented out.

Another issue that is concerning me is that of the market as far as potential renters.  For those of you who don't know, South Florida's entire economy (80-90%) is made up of tourism and hospitality which obviously is getting absolutely crushed by COVID.  This is concerning to me since I'm curious as to who I'd be renting to if no one has a job.

My plan was to wait a few months to see what my employment situation was going to be prior to taking out an enormous house loans, but this frustrated my friend because he viewed as me just procrastinating on my first deal.  Are my concerns legitimate or unfounded?  I look forward and appreciate anyone who helps me in this matter.

Jacob Bennett · Answer

Hey guys, thank you very much for the advice.  It will be put to good use, especially the info about the FHA 203K loan and studying up on the geology of Florida.  As far as the latter is concerned, I was under the impression that sink holes were a primary concern for Central Florida and not so much for South Florida.  Your point about rising sea waters is however a concern.  I feel silly, but I only just remembered that again.  Been so distracted with COVID lately that I forgot about global warming!

Craig Anderson · Answer

It would do well, to take some souse work in the geology of Florida, due to some parts of it, is sink-hole sand deposits, which ever-so-often suddenly swallow up houses, as new sink-holes open up. And those with these type of houses, are often looking for suckers, to buy them, at too high a price, & be stuck with the constant threat of an house, which could collapse, at any time, due to sand is under such houses.------------------------------------Another type of house to avoid, are those in Florida, which are too low, & already, too low to sea-level, & which will be under ocean waters, as the world's oceans are predicted to rise, at least one foot, due to the glaciers are melting away in at the poles of the earth. (The Wall Street Journal, in the last 12 months, has had articles, that real estate in Florida, which is a goodly number of feet, above sea-level, is now selling for high prices, & intended to be built on, by the wealthy, as refuge from the rising expected ocean, which surrounds Florida.) So, again the study of geology of Florida, will also help you with this rising seas problem.--------------I suggest that you do take your time, in choosing what property to buy in Florida. And one reason to do so, is that a Recession is likely to soon begin, as a by-product of the COVID-19 virus, now disrupting the U.S. in 2020. And in Recessions, Florida real estate prices have usually dropped massively, & in which, are many good buying opportunities.

Brandon Dumbuya · Answer

@Jacob Bennett

There's nothing wrong with getting educated before making a significant financial decision. Real estate investing is a risk and the more knowledge you have, the more you can mitigate the risk. House hacking is definitely a great way to start that provides you with experience with less risk than a typical rental since your usual housing expense is going towards your investment. Given what you've said (your income may be affected, the dominant industry in your area is taking a hit, you just started seriously considering investing), I think waiting a little longer is the right move.

Waiting doesn't mean sit around and do nothing. Keep expanding your knowledge and gaining a deeper understanding of the industry. Network on here to find potential mentors that you could learn from or potential partners that could provide capital. You could also learn about investing long-distance (Check out David Greene's book) if you're concerned about the future of your local market. Also learn more about potential financing options (A potential alternative to FHA is a Fannie Mae Homestyle Loan).

Don't be in such a rush, especially with today's uncertainty. While now isn't necessarily a bad time to invest in general, you need to analyze your specific situation to know if it's the right time for you.

Kyle Martinez · Answer

@Jacob Bennett Do you have a property already? Also, does your state have a program along the lines of a "Down-Payment Assistance Program?" The FHA loan only requires a 3.5% down-payment, but if you are eligible for your state's assistance program (if there is one), it will allow you to forego the down-payment entirely and place it into a "Second Mortgage" that sits interest-free until you decide to sell or refinance the property. You are eligible for an FHA 203k loan (a renovation loan) up to the same amount you are approved for total  without the 203k aspect. If you would have been approved for 200K on an FHA loan, you could purchase a property for up to 165K, and then finance up to an additional 35K in the form of a renovation loan(FHA203K) that could be used for renovations; the result would be a loan for 200K. The only caveat as far as I am aware is that you must live in the property for at least 12 months. This includes in a duplex or quad-plex as one of the tenants. I was told by a certain lender that I could begin the process of post-renovation appraisals as early as 8 months later. Hope my limited knowledge helps!

Rami Aweti · Answer

Hi @Jacob Bennett I think there is nothing wrong with being prudent. Besides, you just started evaluating real estate as an option. That's not procrastination. I was a strong buyer in the middle of the housing crash ten years ago and it took me two years to wrap my head around what I want. Never FOMO. The market is not going anywhere. Make sure you feel absolutely certain. Hope this helps!