Trying to create my first investment strategy

[John Bradley]

Hello Biggerpockets community,

I am a new investor from southeast PA looking to get started on my first property. I have been browsing on here and saving for the past few years.I have accumulated some cash that I am ready to put to work and I am looking for guidance as I try to navigate the decision making process. I am currently living with my Mom in order to save money but we are both at the point where we are ready for that to end. I would like to either house hack with a duplex, do a live in flip for profit, or my first BRRR.

I have 22k in cash ready to spend. I also have an additional 20k that I could potentially pull out of other investments if needed, but I am more comfortable keeping that as my emergency money in case I lose my job or something like that. I have been in contact with a lender who assured me that with my good credit I am approved for a conventional loan with 5% down on a house in the 220k range. My brother is a real estate agent and has been providing me with access to MLS listings. I have family I can borrow money from to complete renovations, tools, and have a few connections to help me get work done as needed. I have some remodeling/construction experience as well and plan to do some work myself.

I have been looking at duplexes in delaware county to house hack because I have more resources there and its a central location to a lot of places I go which would make it suitable for me to live. This seems like the lowest risk option because I can collect 1000 a month in rent or more from a 1 bedroom unit and live in the other unit. However, with 5% down my monthly payment is looking upwards of 1000 a month because the property Im looking at is listed at 235k. I would like to make improvements and eventually rent out both units. Would there be an opportunity to sell at an appreciated value if I make improvements to the property? Or should I work towards renting both units and cash out refinance to move on to another one like the BRRR method? Seems like I am overpaying no matter where I look based on the average rents in the area. I am worried that even if I make the property nicer the extra 200 a month in rent per unit wont be worth it. If I am living for free or close to it that would allow my current budget to stay intact, so maybe it makes sense just to use this method for that then in a couple years try to sell at appreciated value. I also see that the properties I'm looking at have tenants which adds stress to the process because I have to figure out how to get them out and me living in there instead. Any input on this house hacking idea would be great.

The other option is to buy a single family home. I have been having trouble finding anything on MLS that can be purchased for 70% of the ARV. In my price range it seems to be smaller square footage homes and the comps for the ARV I want to sell at always seem to be bigger houses. I have not made any offers or tried to negotiate yet but I suppose that could allow it to happen. If I were to go this option I would basically be paying the mortgage and trying to get the work all done in a year and then sell or rent and refinance. When trying to make the numbers work for these deals I find myself wanting to stretch the ARV to see my profits on paper. This one leaves me with just as many if not more unknown factors but lures me in the with the idea of making a real profit at the end of that year that I could use to pay off my car or student loan.

   If anyone has ever been in my position and has any guidance on how to make a decision without get lost in the calculators, spreadsheets and hypotheticals, please feel free to share your experiences. I really want to make my first deal but I have been looking at the internet until my eyes blur and I feel like I need assistance connecting the dots. 

Thanks, 
John 

[Alecia Loveless]

@John Bradley If you go the MF route which is what I have chosen to do for now while I am building my portfolio I would try to see several MF properties in the area you are interested in. This should give you some idea of what type of renovations you want to make that will not over renovate your property. You can even keep looking at properties after you buy your own if you want to stay current or go look at some that are for rent.

I completely renovated one side of my duplex, the one I rent out including down to the studs and the floor joists in the bathroom because it was rotted out, 4 rooms of laminate plank flooring and all new appliances and new countertops, laminate because that is standard in my area. New lighting, new electrical, new plumbing and a new separate hot water heater for that unit. Total cost $25,000. The unit is a 3bd/1ba.

On my side I’ve added a dishwasher and done some painting. There’s some wall patching to go and a little more painting. Total cost when I finish $1200.

So how much you actually need to spend for renovations may vary depending on the unit and tastes and preferences.

The rent from my tenant is below market value because he moved with me from a previous property, never needs anything, is quiet, and wasn’t going to bother us on the other side of the building. Yet his rent pays the taxes, water and sewer and our cable and electric and mortgage. I highly recommend the MF for that reason.