Feeling defeated...Should I change my focus?

Question

Hello everyone,

I have been following BP and studying everything about RE for a couple months now. And I have been set on finding a 2-4 Unit somewhere in the Philadelphia to owner occupy since I am currently renting (figured it'd be great to pay myself rent rather than someone else, and to get some rental income to help cover mortgage).

My budget was no more than 200K max and I have looked at about 30 houses in the past few weeks. Not that I havent found anything in my budget, but I haven't been able to find a property in an area that I feel safe/comfortable living in.

I am starting to think maybe I should change my focus and try to find cheaper SFH where the mortgage payment would be around the same as my rent now (or slightly more). So I started looking at properties (such as HUD/Homepath) that need updating or cosmetic rehab and thought "I can get instant equity if I can make a place look nice and acquire a property at a discount". But my question is, if I have to take out a loan in order to renovate the property, am I better off just buying something that doesn't really need work since the bank would appraise based on after repair value? Being new to RE I am feeling pretty beat up and stuck now.

This would be my first property - any advice would be much appreciated.

Thanks!

Ralph R. · Answer

@Yvette Chung

Don't give up girl!  you have nothing to loose.  nothing ventured nothing gained.   Ask yourself if you can quit any time you want why quit now??

I've been close to bankruptcy, had rotten tenants etc. etc.  Part of wealth building is a super desire to succeed.  I learned from every mistake.  You set an achievable goal, then make a plan to achieve it.  you then work your plan.  That means you change your plan according to the obstacles that arise.

I couldn't find a property that fit my criteria for a year and a half.  I switched the cities I was looking at to purchase in and still couldn't find one.  Then one day a realtor I had spoken with called and I ended up buying one property  The day it closed I got another lead and I ended up with 2 good deals in 6 months. Had I given up I would have missed both.

Your Idea of a House Hack is very good.  What you need is to alter your plan a bit.  Save more down payment, or look in a slightly higher price range.  My dad used to tell me "If you are catching small fish you are fishing where small fish lay (live)."  This translates to change where you are looking for these properties.  Try a mailing campaign or other Realtors but look for somebody that's getting ready to sell but not yet listed.  One of my tricks is to ask Property Managers if they know of any body about ready to sell.  join a local real estate net working group, they even have them that are people from BP in some cities.  Try getting pre approved so you can offer a faster closing.  Try the SFR Home path approach, but contact the loan people to see how the financing works.  Its actually 2 loans one to buy and one to fix  or something like that CHECK IT OUT FIRST!!  Check every option out completely.  Make some offers a little less than asking price in an area where you feel safe.  I wouldn't even look at an address where I didn't feel safe.  No sense beating yourself up looking at something that's not going to work.  That's an exercise in frustration.  Sooner or later you will find the right place.  Keep changing your plan until it works.  I wouldn't change the goal (House Hack or Home path as both are a viable starting place) to fit the plan.  Change the plan to achieve the goal.

Good Luck!!

RR

Ronan M. · Answer

@Frank Spaulding if only it was that easy. Poster mentioned noting about wanting to flip homes and mentioned she has only been studying RE for a couple of months. I don't think telling her to run out and flip a few houses would be her best course of action at this time.

Brett Brown · Answer

Hi, Yvette!  As someone that has so far only invested in turnkey, and is still waiting on that first buy-rehab-hold, you have my sympathies.  :-)

One thing that might have already been mentioned/considered (but I'll bring up just in case)... would be buying a "big" SFH with the plan to convert it to a duplex.  It has some big caveats regarding zoning approval and finding homes that have viable utility splits, but it's another thing to throw out there just to make sure your "net" is big enough, so to speak.  Lots of good threads on BP on the topic if you search for things like "convert single family to duplex" and such.  (As an aside, a quick tip for searching BP forums; I'll often just use Google and put in my search terms plus "site:www.biggerpockets.com" rather than searching through the BP interface itself.)

Out of curiosity, what areas are you looking in?  We live in the first-ring Philly suburbs.  Philly is such a block-by-block city, I'd want to make sure you weren't losing out on some possibilities by not including some areas.

Ram Gonzales · Answer

@Yvette Chung You could also consider taking an equity partner to close the gap on funding. I am an equity investor and, although I've not done it yet on a rental, I don't see why it wouldn't work. An investor/partner pays you for some equity in the deal. You use the cash to make the repairs and get it rented, then you refi and cash out the partner. Just something to consider.

John Casmon · Answer

@Yvette Chung What are you paying in rent? What's limiting your budget to $200k? I hate the idea of going with a SFH instead of a 2-4 unit owner-occupied. Stay the course and broaden your budget or neighborhoods.

David Ross · Answer

Hi @Yvette Chung and welcome to BP.

I agree with @Jayson M. , you may be casting too wide a net and aren't focusing on one area well enough to learn the ins and outs of the neighborhood.

What are your long term goals? If you're looking to only reduce your monthly costs, there are neighborhoods on the rise where you can buy a modest 2-3 bedroom home for under $200k. Rent a room to a graduate student or professional and you can easily come close to breaking even and learn more about real estate in the process.

If you're dying to renovate a home, I'd suggest going conventional for a grandma house that you can cosmetically upgrade at your own pace, then after a year or so refinance with another bank.

Good luck to you in your search!

Jayson M. · Answer

First find areas that you would be comfortable living in.  Philadelphia is a big place with lots of different neighborhoods.  Some are very urban, some feel suburban, and some are almost rural.  Drive the areas.  If you feel comfortable on a drive-by, then walk them.

Once you feel comfortable with a couple of areas, it will be easier to focus on just what you want.

Also, one option is buying a place and making it a 2 or 3 unit.  You'll have to watch the zoning.

Lastly, see if your mortgage professional will take rents into account.  If they do, you could consider a higher priced house.

Matthew Maggy · Answer

My two cents:

1) House hacking doesn't always have to be done in a multi-unit. You can rent out rooms in a single family home if you don't mind having a roommate. In the right parts of Philadelphia, you could also house hack by renting a room through AIRBNB or something like that. It wouldn't provide a full steady cash flow, but it would offset your mortgage and you don't actually have to deal with a tenant. This would be especially viable if you have a 3 bed/2 bath and rent out the master. I have no experience with these as I house hack a duplex here, but these are things I've heard of others doing.

2) I was told that if you do a rehab loan, then you can't cash out refinance at the ARV until it has "Seasoned" for a year. For example: You buy for $100k, put $20k rehab loan and ARV is $150; Fannie/Freddie will only go with $120k. But after a year, they will loan based on the ARV of $150 then you can BRRR (if that's what you're going for). All the while, you are socking money away for down payment on the next one, or to combine with the cash you take out of this first one for the next one. Also, I have not done this (yet) but have been looking into it for my next buy and hold acquisition, and this is what I've gleaned fro my research.

Brett Brown · Answer

Well, sounds like you're pretty much checking North, South, East and West Philly!  :-)   In terms of particular areas that often "light up" as bad areas but are worth examining, I'd probably list Brewerytown, Port Richmond, Kensington, Grays Ferry, Point Breeze, Kingsessing, and NW Philly.  (I could very well just be retreading things you've already looked at, but just in case...)   Ralph is certainly fair to note, though, that unless your situation dictates otherwise, there's no need to over-rush it.  You can check places by MyHouseDeals.com, groups like DIG, and of course the BP marketplace for off-market stuff as well, along with good ol' Craigslist.

If you definitely want to stick with personal money, then maybe a 401k loan (not withdrawal) might give you enough to give you the push you need, if you have 401k to tap. Check with family & friends for interest in private money lending; it's not technically your money, but if they're already close to you then it removes a lot of the psychological barriers to lending.  (As one of the mentors out there said at some point, think of them as "private money partners," rather than "private money lenders.")  Or, as was mentioned, just save up for a bit longer while you streamline your search process.

Either way, keep on looking at you'll get better & faster at your process, which will pay dividends in the future.  And I'll be happy to keep my eyes open, as well, for anything that might fit for you. :-)

Yvette Chung · Answer

Hi @Brett Brown!

Thanks for the idea! I will certainly look into it although since it's my first property, i would probably prefer a purchase that's a bit more beginner-friendly. :)

I have been looking all over Philly, Wynnefield, Mt Airy, certain parts of Germantown, Manayunk, South Philly and even Northeast Philly. What never seized to amaze me is how block to block the city truly is, even within the parts of the city that's generally considered to be "good neighborhoods". Not sure whereelse to look, honestly. Or maybe i just need to be more patient. :)

Feeling defeated...Should I change my focus?

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