[Updated] Diving in head first - how does my plan sound?

Question

Hey all - really appreciate the feedback on my first post. Since then, I've determined that I'm going to forgo the live-in property (not by choice, necessarily) and shoot for a pure investment property.

With that said, I'm pretty flexible on my criteria in order to achieve the highest cashflow property possible. My plan is a buy a turn-key or near turn-key property in the Charlotte, Gastonia, or Mooresville market - I'm open to SFH and MFH, considering going with the MFH home if cash flow significantly outweighs that of any SFH deal that I'm able to find.

A few questions for those willing to share knowledge:

- I'm shooting for cash flow, not units. Any insight as to what combination from the above I have the best chance for max cash flow + appreciation? (heard a lot of great things about Gastonia)

- I've heard that I can get down payments as low as 15%, but the rates are much higher. If I can afford 20-25%, would you recommend I go ahead and put that higher amount down?

- Have you ever heard of properties that qualify for conventional financing that I'd be able to BRRRR? I have a network of contractors and am open to rehab if I'm able to re-fi, but am avoiding hard money in my first project.

Thanks in advance for any thoughts - looking forward to giving back to the community as I continue to learn.

Austin

Whitney Hutten · Answer

@Austin Lynk OK... to be clear... you are wanting to pick up a rent-ready SFR or MF that you can live in? Put little down? But then want to BRRRR it?

Since things are slightly fuzzy, I'm going to make a few assumptions here to hopefully spark ideas. If you want to live in the property, why not house hack your first one (or 10 for that matter). Buy a duplex (triplex, quad) that needs some love, with an FHA 203K loan (you can put 3.5-5% down), have your GC complete the work. If you run your numbers correctly and find a good deal, you can get into it for little down, use the FHA construction program to roll in your construction costs, renovate the property to force equity, then tenant the other unit(s) to pay for your housing (or significantly reduce your costs).

Then, after a year, you can move, tenant the unit you were in, and repeat the process.

In this scenario, you are using conventional financing to snag an honest BRRRR property. If you don't use the 203K FHA loan, the home will need to be in pretty good mechanical condition to qualify for conventional financing.

Hope this sparks some ideas!

Colleen Goldstein · Answer

For cash flow, I'd focus on lower end starter homes or projects in good areas. I like the Charlotte suburbs in anywhere with good school districts as I have continued to see the appreciation on my homes climb over the past few years. This gives you the opportunity to leverage via cash out refi down the line. I personally would steer clear from Gastonia, happy to give my two cents on why offline - but a simple drive over in that area may have you reconsider that strategy especially if self managing (which I do, and recommend). Another avenue that I you haven't mentioned is mobile homes - you can find these in good areas, minimal taxes (especially on older units), and rents can be very profitable compared to single family or multi family for the same money. This will depend on how much cash or other financing options you have available. For the 15-20-25% question - depends on what rates and the cost for each of them. Depending on how fast you want to scale and what the incremental cost of the money is to put less down vs. opportunity cost of not having the funds. If your shooting for cashflow though, likely 20% as you won't have to pay PMI and the lower rate benefits will likely exceed the opportunity cost of a few thousand up front - wouldn't recommend going higher than 20% down though as no extra benefit. For rehabs, if you have good credit there is always the lovely no interest 18 month credit card to help finance rehab (vs. loans). This is how we finance majority of our projects and snowball the debt afterward once the project is renting & cashflowing. I only recommend to help get through that initial tight squeeze for down payment, closing, and rehab - and if you have the funds/buffer to pay it back and not pay the interest. Feel free to reach out, happy to discuss further.

Matthew Porcaro · Answer

Hey Austin -

You can do a BRRRR with a renovation loan like the HomeStyle loan, and not be an owner occupant. That loan requires 15% down like you mentioned in your post. The rates will still be competitive, and you'll be able to get into something for a relatively low amount of out of pocket, and be able to force some equity in the process if you run your numbers right.

Your other option is hard money/private money, or a combination of both.

Turn-key is nice, but usually there isn't too much left on the bone for you as an investor. I'm biased, but I think you sound like you have a whole journey ahead of you, and turn-key to me is more attractive for older investors with large 401k's or annuity funds that are looking to move their money into cash producing assets, without any of the work.

Just a thought, either way, your head is in the right place! You can't go wrong in any direction, just start and learn as you go!

Austin Lynk · Answer

Hey @Whitney Hutten - thanks for the response. This would not be a live-in (that was part of my previous plan). The likely outcome of my search would be a rent-ready SFH or MF, but wanted to note that'd I'd be open to a BRRRR if it qualified for a conventional loan (I hear these are rare).

I can't house hack because I'm fully remote, but my employer won't sign a letter saying I can live in Charlotte, meaning I won't qualify for an owner-occupied loan. Sorry if that wasn't clear!

[Updated] Diving in head first - how does my plan sound?

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