Dayton, OH Area First Time Homebuyer / Investment Property

[Baylee Shepherd]

Hello to all,

For a little background, I am an 18 year old college student from the Dayton, Ohio area and I am strongly considering going back to my hometown, enrolling in community college, and pursuing my real estate goals. I live in Troy, Ohio just 30 minutes north of Dayton. With that being said, I have a few questions about first time investment properties. I do not have much experience at all with home buying so any advice would be great! I am looking into buying a house that can be owner occupied while renting out other parts (ADU, duplex/tri).

My first question is what to look for when analyzing a deal? How should I properly negotiate a deal and know a good price of a house?

My second question is what type of lending would you suggest? Are there specific programs that cater to this type of property/investment strategy? and anything else I should need to know?

Again, any advice or answers would be amazing and I want to thank you in advance!!!

[Dan H.]

>I do not have much experience at all with home buying so any advice would be great! I am looking into buying a house that can be owner occupied while renting out other parts (ADU, duplex/tri).

I think your plan of an owner occupied house hack is very good. If you want better return with more work, you can consider a BRRRR.

>what type of lending would you suggest? Are there specific programs that cater to this type of property/investment strategy? and anything else I should need to know?

For lowest down payment, owner occupied, the FHA loan is good. Some terms are a little worse than some other loans, but it allows the smallest down payment. The one area were it is worse than almost all other loans is getting rid of PMI, but look at that as the price that allows you to purchase for so little of your own money. You can likely purchase with 3.5% of the property cost, but may be required to have some reserves.

FHA will include income from a second unit in your qualifying.

I use a mortgage broker. They do have a cost, but they provide a service. Regardless if you use a broker or not, find out what you qualify for (get pre-qualified). Pre-qualified will make your offer look much better than if you have not been pre-qualified. The mortgage broker or bank also can provide various loan options for you to consider as well as go into more details on the pros and cons of an FHA loan. There are also numerous lenders on BP. If you have a specific lending question you can ask it and there are probably a dozen very qualified lenders that could provide your answer.

>what to look for when analyzing a deal?

BP has various calculators to help determine cash flow and return.  They are pretty good, but like every calculator they are only as good as the inputs.  The free BP accounts limit the number of times you can use the calculators.  There are likely similar other calculators available online.  I suggest whatever calculator you use, do some trial runs with actual properties. Do some research for your market for things like vacancy rate, historical appreciation, etc. Then use conservative numbers. For example if the vacancy in Dayton is currently 5.5%, consider using 10% in your calculations.  Maybe post on BP the calculator results to get inputs from experienced BP users (note not all BP users have much experience).  Even those with experience have different thoughts.  For example, I believe my maintenance/cap ex allocation is accurate but most people would find them to be very conservative (I suspect they have not spent the effort calculating the estimate that I have).

Related to expenses, the 50% rule really is not a rule but a guidance.  The 50% part is not the important part.  The important part is realizing all the expenses that comprise the 50% rule.  I do believe in a market like Dayton, the 50% rule will be fairly close.

For what makes a good deal, there are a lot of correct answers to that. Note sweat equity such as a BRRRR can provide outstanding returns (We have historically achieve infinite return on our BRRRRs), but they are not passive. BRRRR is typically the route we have taken, but they are a fair amount of work (not passive).

There is also a ton of posts on cash flow versus appreciation.  I fall much more into the appreciation side as providing great wealth potential, but I realize that when people are starting out they need the cash flow.   When starting out cash flow is often needed to pay the expenses.  Furthermore, in general Ohio markets will be more cash flow markets than appreciation markets (with Columbus being fairly balanced on cash flow and appreciation).  Because you are investing in Ohio, cash flow will be the primary criteria that determines the expected return (Columbus may be an exception that appreciation may provide more return than cash flow).  You need to decide how passive you want the RE investment realizing more passive often equates to lower return (but less work).  Flips are similar work to BRRRRs (but we have never done a flip - we have sold a couple times but they were not flips).

Final item, there are a lot of homeruns posted on BP.  Many are from experienced investors.  Recognize your first purchase might be as much a learning experience as provide a good return.  You are coming in at a market high.  No one knows what will happen going forward, but it is hard for me to believe that we can continue to see the appreciation of the last ~10 years for much longer.  Note this is not to imply I am predicting a crash more that I am expecting appreciation to more closely be associated with the inflation rate.  A RE start were you make a little money and learn a lot could prove very beneficial in the long term.

>How should I properly negotiate a deal and know a good price of a house?

Use a real estate agent. The seller pays the agent fees. I do believe that better deals are available off market, for sale by owner, purchase via wholesaler, etc. I recommend a newbie start with an RE agent purchasing off the MLS. The agent will walk you though the process and should look after your interests including negotiating on your behalf. After you have more experience and have a certain comfort level you can go for off market purchases. It is too much to learn and too risky for me to recommend this route on a first purchase (even though my first purchase was a for sale by owner).

You want an agent that you get along with, that is responsive, that will provide guidance through the process, that has the necessary knowledge (this should be all RE agents but sadly it is not).  Ask for referrals from people you know.  Maybe do some research for top agents in your market.  Maybe interview your top 3 candidates to find out which one really is best for you.

Good luck