First investment advice in Orlando

[Yader Gomez]

Hello BP,

I'm still a newbie at all this so please feel free to recommend any reading material to get me started. Long-term I would like to own multiple rental properties so this would be the first step.

My girlfriend and I are looking to buy sometime within the next 2 years. It could even be as soon as next year. We have excellent credit, no student debt, no car debt, combined income a little above 110k, and savings of around 35k to use for a down payment so I feel we're in a good place to consider our first buy. But you can only make one first purchase so I want it to be the right one.

The main things I'm hung up on are 1. House hack a duplex vs buy a SFH and wait a few years down the road to buy our first rental once we recover financially and 2. Applying for financing separate vs together.

1. I've been leaning more and more towards a MFH, probably a duplex. The challenge is finding one in a good area and a good size. Depending on the price, I can work with having to fix it up a bit. It's also been tough finding a duplex with each unit being over 1000 sq ft and having 2 bathrooms. I've found a few but they're not common. I feel like now is the time to do this before we have kids and won't be able to manage living in a smaller space typical of a duplex house hack. 

Is there a benefit to doing things the old way and paying through a SFH home first? House hack just seems to be the way to go. The price of the duplexes in Orlando may also make it tough to perfectly house hack since rent in the area may fall a little shy of the mortgage payments. But I'm okay with a significantly reduced mortgage instead of a free one. It would still accelerate the pace at which I would earn equity compared to having a SFH which generates no income (we wouldn't want roommates).

2. Is there a big advantage to applying for a loan separate? My agent suggested this so the other person's credit will be in better standing for the second purchase as well as eligible for first time buyer benefits. The downside seems to be that applying for loans separately for our first and then second purchases would lower our borrowing power. This is more of a concern for the first purchase since by the time of the second purchase I would hope to have an income generating MFH to help us build up a down payment.

This is a lot but any help would be greatly appreciated as I'm still learning even the basics of REI. Thank you!

[Jim Blackburn]

Hello Yader -

One of the best ways a new investor can get started, in my opinion is by purchasing a 4 unit property as their very first purchase.

Orange County ... Here the county loan limit for a 4 unit property is 532,950 That enables you to buy around 550k with just 3.5% down payment.
The seller can cove closing costs & escrows. That's about 20k cash. Plus we need to be sure to have another 3 months in reserves. Call it 12k So you need about 32k total.

We live in one unit, and rent out the other 3. In some cases the rents from 3 may be enough to cover the living expense in unit we live in. In most cases, the rental income will make our cost of living in our unit much cheaper than it ever would be if we bought our own condo or single family house.

This is an FHA loan. Typically you can only use FHA one time. Unless you have a really good letter of explanation that details the reasons why you are moving out of your current primary and into a new house using FHA a second time. (Ie. having a baby, moving to other side of town for job, etc.) If the exception is granted, then we get to use FHA twice allowing us to control more real estate with only 3.5% out of our pocket!

Where many investors make a big mistake, is buying single family or condo first... then trying to acquire a 4 unit later. It's much more difficult to convince the underwriter that you are moving out of a comfortable private space , and into a building shared with 3 other families. Then you are stuck putting down 25% to acquire that 4 unit as investment VS the 3.5% FHA as primary residence.

Long story short.. by purchasing the 4 unit as your first property, you're able to acquire, control, and benefit from the appreciation of 4 units with just about 20k down (3.5%) vs about 160k (25%). How long would it take us to save up 160k?
My vote is a 4 unit purchase with FHA on our very first buy.

Ask anything.
Jim