First Investment Opportunity

[Amber Koontz]

Hello all, I've come across a duplex that needs a bit if work for around $50,000. 6 bed 3 bath. I'm researching the area to see about the neighborhood and also what places go for in that area. I would stay in this place for the 2 yr timeframe needed to use this for my next purchase. I'm unsure of how to maneuver this. I need to get approved for a loan. Already approved for a regular house loan, but duplexes seem to be very different. There is a possibility for hard money inclusion, but I wouldn't know exactly if I have true source and if you can get that type of assistance when making a long term investment or holding. I also need to find a reputable construction company that could do the work to remodel this duplex. That brought me to also think about having someone come out to actually look at the property and tell me what all needs to be done. I'm thinking $15-$20,000 in the remodel. How much do I negotiate with the construction company as well as the seller? I have a million questions. I've only been saving for a few months now. I think my savings or start up could be decent by June however, this is for sale right now. Can anyone straighten my process out as far as help me focus on the key things and maybe more research material for lenders and construction companies as well as if this even a deal to make? 

[O'brian R.]

Welcome @Amber Koontz! 

I'm assuming when you say that you're staying for only 2 years, that your plan is to avoid capital gains tax and then roll that into the purchase of another property. Just keep in mind for your duplex, since only 1/2 is considered your personal residence and the other 1/2 is an investment, that only a part of your sale proceeds would avoid capital gains tax (up to 250k or 500k if married). Though you can 1031 it, but the timelines for purchasing the second property to roll the gains can be difficult.

Have you looked into FHA financing with possibly adding a 203K rehab loan? Since you plan to live there, you can put as little as 3.5% down for a 30 year fixed loan. With FHA, you have to live there for 1 year I believe. If you're adding a lot of value by rehabbing the place, maybe in a couple years you can do a cash-out refinance to a conventional loan which would remove the mortgage insurance premium attached to the FHA loan. Then since you no longer have an FHA loan, you'd technically qualify to do another FHA loan at 3.5% down if you want to move into another multifamily (2, 3, or 4 unit). So instead of selling, you'd own 2 properties and will have avoided any capital gains tax. In summary, you avoid the capital gains tax all together, you keep your first duplex, have it rented out completely, and can repeat the process on a 2nd property with a lot more experience.

In terms of the Houston market, I know @Adam K. is over there and would have a lot of valuable input.