What to expect when planning to live in your first investment.

Question

With my current plan to be living in the first house (SFH) for a year then moving to rent it out, what should I realistically be expecting to get on the numbers? The reason for doing this is get the lower down payment with conventional financing. Would the aim be to at least brake even when it comes to renting it out? I know that with the lower down payment comes lower cash flow but I am not sure if it is realistic to expect any cash flow at all unless I can buy at a big enough discount. I am starting to think that it would make more sense to just save up the 20%.

Also what are some good ways to really set a clear criteria to aid in finding reasonable prospects for single family homes. Looking in the Middletown Ohio area.

Thank you.

Also what are some good ways to really set a clear criteria to aid in finding reasonable prospects for single family homes. Looking in the Middletown Ohio area.

Thank you.

Wyatt Seidel · Answer

Thomas these are fantastic questions.

I think first and foremost, If you're going to be moving into a home with the intentions of only staying for a year, you should expect to not make any money. That being said, maybe look at house hacking or getting a roommate. The first property my wife and I bought was a duplex. We did NOT cashflow for the two years we stayed there, but it only cost us $300 a month to own an appreciating asset.

Then, when we were ready for the next project and moved out of the duplex, we are now cashing-flowing close to $1000 a month from the duplex.

My situation was different because I'm married. For us to make any sort of money it had to be multifamily. BUT, if you're ok with having a roommate, you'll be able to make a little bit of money with a SFH. Then when you move out and keep it as a rental, you'll start making some cashflow because you can increase rent or have another person move in.

I can't speak to the Ohio area because I don't live there, but I would say search for a place bigger enough to have a roommate. Or a property you know you can cashflow when you keep it as a rental. Great questions and keep up the solid work!

Brandon Goldsmith · Answer

I currently house hack and break even on a 2/1 duplex with a roommate here in Columbus. Once I move out I will be cash-flowing a few hundred dollars a month.

I think on the first one it is important to just get started and buy something in at least a decent area that you plan to hold on to. You might night cashflow at first well but try and at least break even @Thomas Rodgers

Alex Gunnerson · Answer

You want to jump in as fast as you can and avoid buying a property that isn't hemorrhaging money.  The value of buying your first property lies in the insane amount of knowledge you will learn, any cash-flow and appreciation is a bonus. Yes, ideally your first deal will cash-flow but if it doesn't it isn't the end of the world.

"I am not sure if it is realistic to expect any cash flow at all unless I can buy at a big enough discount."

Is there a good reason you can't buy at a discount? Yes it takes more work to find these properties, but buying properties at the right price is a massive part of real estate investing and is something you should strive for.

"I am starting to think that it would make more sense to just save up the 20%"

Saving the 20% isn't a bad idea, but personally, I knew that saving the 20% would just keep me on the sidelines longer. I put 5% down on my first property in KC and it is cash-flowing almost $500/mo. This emphasis my point about why buying at the right price is so important.

---

@Thomas Rodgers you are asking great questions, and it sounds like you are on the right path. If you haven't already, I would find an investor friendly real estate agent in your area that can help you out.

Hamp Lee III · Answer

You want to ensure the property will cashflow once you leave. While you’re living there, you’ll have a supplement of income, that’ll be the time to save where you can.

Dave Skow · Answer

@Thomas Rodgers- thanks   1) the  breakeven  will depend on what your mortgage payment is  and  also what your market  can bear    2) using a 3 % conventional loan will likely  leave you  with a lower payment than using a FHA loan plus  you can  try eliminating the monthly mtg ins on a conv  loan  in the future  ( which cant be done on a FHA loan )   3)  Back into what the mortgage  payment  needs to be  in order to  break even  based on a  realistic rent amount  ..then  figure out what loan amount  corelates to this mtg payment ...if this loan amt  works  for  being able to  buy a property - great  ...if the loan amount is way lower than  what is needed to buy a property at the  dollar amount you see as  realsitic  -  yes - wait and  put more down   ( fyi - alot of this  analysis  can  be   done  by your lender  so  get pre approved  if you arent alread - good luck

Alex Gunnerson · Answer

@Thomas Rodgers It wouldn't hurt to do some work up front but I would get in front of an agent as soon as possible. I find a lot of investors define their crystal clear criteria something along the lines of:

B+/A property, $200 cashflow, 12% ROI, turn-key condition, and they have ~$20k to invest. If you can find that, great! However, an agent is going to have an understanding of whether or not properties like that even exist in your market.  In most markets, this criteria would be unrealistic and an agent would be able to tell you that.

"About how much are C Class properties cash-flowing in x area? How about B class? What is the average purchase price of those properties? "

A good agent will be able to answer questions like these which will help you establish a realistic, achievable criteria to work with.

Thomas Rodgers · Answer

@Alex Gunnerson thanks a lot for the great advise. I would like to have a pretty good criteria as well as money set up before getting to the agent so I that I do not waste their time. Would you recommend talking to one even before I am in a position to act on a good deal?

What to expect when planning to live in your first investment.

Most Popular Reply