Preparation tips for my first purchase

[Jason Delgado Alonzo]

Hello, I am looking to start my real estate journey, and am estimating I will have all my "ducks in a row" within 8 months to a year from now. That being said my goal is to take advantage of an fha loan (and 203k if applicable) to purchase a small multifamily which I will then househack.

I am about 50 shows in to the Bigger Pockets Podcast and am absolutely loving all the info. I have been taking all book recommendations and compiling a list and have started working my way through those as well.

My question to the veterans in the industry is, how can I best prepare myself for the road ahead? What kind of funds should I have in a reserve account for unforeseen issues? Is there a good source to look for small multifamily homes (specifically in the Seattle - Tacoma area or outlying areas)? 

Thank you for an and all input!

[Michael Haas]

@David Robinson & @Jason Delgado Alonzo - although its a great program, the 203k loan should always be a last resort. If you're able to finance the renovation in other ways (cash, friends and family loan, credit cards with 0% interest for 18 months, sweat equity) you'll usually get a better deal on the rehab, have an easier time getting your offer accepted, and have less headaches.

There are two problems with the 203k loan in the Seattle-Tacoma market, and hot markets around the country:

1. Contractors are busy. They know that you're locked into using one contractor for everything, and that you have to make a very quick decision on who to go with (by picking a contractor and approving a bid before closing). Because of this, and because of the additional hassle and paperwork the contractor has to go through in working with the bank, most will bid a 203k job higher than they would for the exact same job paid for by the homeowner in cash. 

The 203k also requires that you pick on general contractor to manage the whole process, and you cannot buy materials, manage or hire subcontractors directly, or contribute sweat equity to the rehab. This is fine if you want someone to handle 100% of the renovation for you, but many investors (myself included) hire subs directly, use cheap handymen for less expensive tasks, and put in sweat equity on nights and weekends to bring their rehab costs down, especially on their first couple deals. 

2. The market is competitive. Because you're required to get a approved bid before closing, 203k loans usually take 40-60 days to close (or sometimes more!), while conventionally financed transactions close in 30 days and cash offers close in 3-14 days. The same fixers that you're offering on with your 203k will be getting conventional and cash offers with better terms that the seller is more likely to accept. 

PS: Nowadays I have no problem paying a contractor for 100% of a project because I have more money than time, but I think there's a TON of value in doing some things yourself or doing some GCing on your first few projects. On my first 3 rentals getting involved myself saved me well over $100,000, improving my cost basis, cashflow, and allowing me to grow my rental portfolio much more quickly.