Quote from @Trey Belmore:
Hi Josh- this sounds like a great plan to get started in real estate investing! A couple things to keep in mind that you may have already vetted out but wanted to bring to your attention:
1) Have you already selected a contractor who can help prepare the bids for you when you identify a property? FHA 203K can be pretty involved and it is important to have all your ducks in a row to ensure you're setting yourself up for success. Have you spoken to a trusted lender about the process? FHA 203K loans will typically require a 203K consultant to overview the project as well. your lender should be able to assist with this. There is always an option to go with a Conventional Homestyle renovation loan. This is not as involved as a 203K renovation loan, but it does require 5% down versus 3.5% down. Here is a 203k consultant list: https://entp.hud.gov/idapp/html/f17cnsltdata.cfm
2) Are you prepared to cover the closing costs in addition to the down payment? Closing costs can be another 2-3% of the sales price in addition to the 3.5% down payment. However, there are strategies to get the seller to cover some or all of the closing costs through seller concessions which would reduce your out of pocket expense.
3) I would use your real estate license and MLS access to find comps in the areas you're interested in to estimate the ARV of any prospective homes. This is super valuable information and insight when searching for your first investment property. You have full access to see what similar homes with similar finish outs of your final product are selling for to back into an accurate ARV.
4) Lastly, as someone who has house hacked myself I would make sure you understand how a lender will analyze your second property. Would your intent be to purchase this property and live there for a year then rent it out to purchase another primary residence? If this is the case, it is important to note that a lender will generally need a 12 month lease on the departing residence in order to use 75% of the lease amount to offset that departing mortgage payment. It is a great plan to rent it out now room by room to maximize profit, but this is difficult to source from a lender's perspective when it comes time to purchase a second home. Hopefully, that makes sense. if not, feel free to reach out and I can certainly expand on it.
Goodmorning sir! Thank you reaching out and passing along not only some great advice, but some thought provoking points.
1) Fantastic Point. I think early investors like myself like to think in theory versus actually getting all our ducks in a row to make valuable and educated action. I will most definitely work to start sourcing good, investor friendly lenders and use the resources you provided to find good 203K advisors. That really brings into perspective it’s more than just a plan- you need smart and tangible action. Do you have a plan suggestions/small tips as I look for my first investment?
2) I was looking to represent myself on the buyer side to reduce some of these upfront hard money costs, but as a new investor I’m stuck between using a seasoned realtor or leveraging my current position. If electing for the realtor option, I can work with him/her to define some strategies in order to get the seller to cover some of the closing costs. Ultimately I can be more conscious of these additional hard money costs, and allocate funds accordingly.
3) I completely agree here also. I am going to allocate some time daily to just run numbers on active deals. This will surely make me sharper when it comes to shooting offers on good deals that hopefully will yield good return for my first investment/primary residence. What is some primary things you look for when analyzing a deal?
4) Very interesting points, I have never thought of it that way. Would I need to build more tangible equity in the property to make it more advantageous for lenders to authorize a refinance/ secondary loan? What advice to do you have to navigating that obstacle?
Thank you so much for not only tossing over some encouragement, but also providing some situational reality as well. It’s easy to speak of a plan, but to execute with precision and tangible educated thought is hard. Appreciate it so much, and will keep you updated on my future endeavors!
