How much house can I afford?

Question

Hi Bold and Brilliant Investors,

I was wondering if anyone could help me figure out how much I can realistically afford. I've been up nights running numbers with various metrics, but it seems to me that I just don't have enough money to purchase an investment property anywhere.

I've been pre-qualified to borrow about $240,000 through a mortgage broker. I have great credit and 50% equity in my own home (a zoned two family). I have about 10k in cash and a home equity line with 45k. The interest on the heloc is currently at 3.5%, but it's variable.

I've been looking at MLS properties. I realize better deals come through other avenues, but I don't see how a wholesaler would work with someone who wants to use a lender.

Does anyone have an opinion? How do I get into a duplex, tri, or 4 with these numbers?

Thanks very much,

Amy

Rick Stein · Answer

There are many options open to you. For example, buy a property for $150k , put 10% down ( $15k) and ask the seller to hold paper for the balance at say 5%?. He would not have to pay capital gains in the note since he is not receiving the money. The 5% interest is a lot more than he would receive in a money market or CD. Of course you would have to run your numbers and make sure you have a positive cash flow, but that is a very viable option. Another option is to have an equity partner. He/she provides the money and you split the profits. This would give you money in the bank to do one in your own. How about a lease option or lease purchase? The poss Bikities are many but you need an education. I would strongly suggest joking your local REAI.

BTW, the Mls is NOT the place to find properties. The best deals never hit the Mls. You need to do some marketing. Again, Bigger Pockets and your local REAI are excellent places to learn.

Good luck

Amy Zemser · Answer

Hi Rick,

Thank you for your response. I've been going to REIA meetings for a while now. I've heard about all of these options, but I have many questions about all of them.

When you say marketing, do you mean I should send yellow letters to absentee landlords or folks that have a lot of equity in their homes to try and get them to sell at 70% below market value? As if I were a wholesaler? Don't those folks just want quick cash sales?

What percentage below selling price would you offer a house listed on the MLS? 40? 50?

Thanks very much and all best.

Amy

Amy Zemser · Answer

I've thought about all these things, but they seem impossible. Tell me this: why would someone opt for seller financing? What's in it for them?

Melissa N. · Answer

Perhaps not the answer you want but I'd start by identifying your goal then pick a strategy that helps you meet it.

Sounds like you want buy and hold, so are you house hacking again? If so you maybe able to put less down.

I would keep learning and saving until you have more for an investment but you can also try to find a partner.

Another option is finding a deal offering seller financing.

Good luck!