What is the best investment strategy for a first home

Question

I'm 21 and have around 10k in the bank. Want to buy a house that can appreciate in value or multi family that can produce a monthly cashflow. Il probably be using an FHA loan as I don't mind moving in for a year.

Logan Allec · Answer

@Angel Moreno, one thing to keep in mind when looking for an FHA owner-occupied triplex or fourplex is that 85% (75% in some states) of the market rents on all units need to cover your monthly payment (principal, interest, taxes, insurance, and mortgage insurance). This is known as the self-sufficiency rule. It only applies to 3- and 4-unit properties (not SFRs or duplex) bought using FHA financing. I put together a spreadsheet here to help potential house hackers quickly analyze whether or not a property qualifies.There are other FHA requirements concerning which you should contact your local lender, but determining whether or not a triplex or fourplex meets the self-sufficiency rule is a good place to start as this rule will immediately eliminate many properties from your search, especially in expensive markets.Good luck!

Bryan O. · Answer

Hi @Angel Moreno. Make sure you view the property like any other investment property, meaning that you like the numbers after you move out. I actually enjoy managing my 3-unit while living in one and my tenants love me because they know I'm right here and care about the property. Of course, you have to be good at establishing boundaries so they aren't always bothering you.With $10k at 21 yrs old, you're on the right track. Best of luck and happy investing!

Anthony R. · Answer

Do you have any experience as a landlord? Do you have any management experience? Have you ever balanced a checkbook and created a budget? These questions might seem silly but owning rentals is not for the faint of heart or one trick ponies. It's for the crazy brave and the stupid bold. You need to be able to think on your feet when rent is late, the mortgage is due, you have $500 in the bank, your furnace just went out and you haven't paid your own bills yet. Failure means wrecking your credit through your twenties and a huge setback on your goals of living financially free. So my advice? Continue to save your money. Save for one more year. Spend that year running your personal finances like a business. Account for EVERY single penny. Don't stray from it. See how little you can live on. Find a local landlord and ask to shadow them when they collect rent, assess repairs and hire someone. Learn what things cost. Finally, always remember that there is someone like me that wants you to fail so I can come in behind you and get a discounted building and there will always be people that bite off more that they can chew.The alternative is an expensive lesson in real estate management.

Angel Moreno · Answer

Logan Allec Thank you! Very helpful il be sure to use it.

Bryan O. · Answer

Hi @Angel Moreno. I made sure that my tenants understood coming into the lease that I am both their property manager and their neighbor. I explained that I am not there to fix any neighbor problems, but that I can respond quickly for real problems. I also do not go there to collect rent. I set them up online and told them that they could otherwise place it in my mailbox.When the boundaries are clear in your head, they will translate into your actions with the tenant. I think it's worked great for our relationship and there is no confusion when we communicate. I have never once been bothered about random crap, except via email. She later apologized and thanked me for letting her vent and enforcing the landlord vs. neighbor boundary strengthened the relationship.I'm at 1 year of doing the "landlord-next-door" thing, and so far it has been pretty awesome.

Angel Moreno · Answer

@Bryan Otterson Thank you for your response! Nice to hear the prespective of someone who is already doing it. Im wondering though, what kind of boundaries do you mean and have implemented yourself? I don't want to get home from work everyday to pestering tenants.

Simon Shih · Answer

@Angel Moreno. House hacking is a great way to get started in real estate investing.Saying that, do not count on appreciation. It's great if it happens, but don't bank on it. The best way to ensure some equity is to buy at the right price. Maybe an REO. If you do buy a multi-property and become a landlord, treat it like a business, which it is. Put processes in place up front that make it easier on yourself and that you can recreate and scale up in the future.

Desmond Collins · Answer

Thanks Angel Moreno,This spread sheet and tool is just what I have been looking for. Great advice given. Thanks for sharing the self-sufficiency rule with me.Desmond