Potential Strategy Advise

[Gregory Mizzi]

TL;DR: I want to buy a fixer-upper with an FHA/VA loan for 0%-3.5% down, force appreciation through renovations, then sell after a year and use the profit as the 20% downpayment on a conventional loan then BRRRR. Is this a good idea?

Hello everyone,

I recently introduced myself the intro group and mentioned a strategy I was considering. Long story short, I live in NYC but plan to move. I want to BRRRR but I do not have 20% saved (not including my investment portfolio, which I do not want to blow on one investment). I did some practice analyses and determined that an FHA or VA loan would not work for a BRRRR. There is not enough money left to cash out. I was thinking of doing a "long-term" flip, whereby my first home would be a fixer-upper purchased with an FHA or VA loan (my wife is a veteran), live there for a year or so as I look for other properties. And instead of a refi, I would sell, hopefully realizing all the profits of the appreciation (minus closing and agents fees, etc.) instead of the refi's 70-80% LTV. The thought being that I can use the profit as the 20% down on another fixer-upper and BRRRR from there. I consider this over a typical flip since I have no experience and hard money loans are more risky. So far, I have not been able to think of any downsides that are within my control. I do not think I would be violating any loan terms, and provided there is not a significant decrease in home values, I think this could work. The only downside would be the mortgage payment vs. an interest-only loan, but I would be living there for at least a year so it makes little difference to me.

Does anyone see any potential issues with the initial strategy?

Thanks!

[Brandon Rush]

Hey Gregory,

It's great you are trying to determine your strategy now. From what you wrote, it looks like you would be betting on appreciation to build enough in one year to get you enough money to sell the property and use the funds to get 20% down on the purchase of the next property. To be blunt, this is not going to work. While homes have appreciated rapidly over the last year, this was a fluke caused by COVID. Hoping for appreciation is what you are doing here and that is not a good strategy.

Instead of buying a property and hoping for appreciation, here are a few options you have:

* Use your VA loan to purchase a multi-family home. While it may or may not appreciate over a year, you have a much higher chance of building funds via cashflow or cost of living savings. Example, if you currently pay $1,200 in rent now per month, by occupying a 3 or 4 family you could now save up that $1,200 a month for a total of $14,400 a year. In two years you have saved up $28,800 and there is your down payment on the next property

* Purchase a single family home with a FannieMae homestyle loan. This loan will allow you to purchase a single family home and build the rehab cost into the loan. You will have to occupy it for a year (I recommend two years to avoid capital gains tax) and then you can sell and put those profits into something bigger and better.

* Purchase a multifamily that needs rehab with a FHA 203k loan. Similar to the homestyle loan, this loan allows you to purchase the property and roll the rehab cost into the loan. The difference is this loan can be used for multifamily properties up to 4 units.

* Lastly, an additional option on top of purchasing a multifamily home with the VA loan in your wife's name is purchasing another multifamily property in your name using a first time homebuyer program (assuming you do not own any properties). This will allow you to purchase a multifamily with as little as 5% down.

I hope this helps. Feel free to reach out if you need any help or clarification.

Good Luck!