All Forum Posts by: Matias Torres

There are different answers for a variety of investors. To accurately answer, we must assume a handful of things based on the information given in the QOTW:

The current national average purchase price of $428,700 (Q1-2022).

The investor makes $50k/year

Because the investor makes $50k/year and using conventional guidelines, they can have a max DTI of ≈ 49%.

**VA loans can go above 49% as long as they meet residual income req's**

Current interest rate (which are not great at the moment) ≈ 5.75%

30 year fixed. 

DTI for this borrower = 49% - considering the rate disclosed above and the investor's income

Total monthly payment ≈ $2000

Max Purchase price ≈ $350,000

Here is an example using each type of loan (VA, FHA, Conventional, USDA) and will cover Non-Purchase entry into the industry at the end:

VA Loan Investors: Eligible for a 0% down Purchase price. Although highly underutilized by the veteran community, a solid option to get into RE Investing as a veteran/active duty is to use the VA Renovation Loan. Identify a property that needs work on the MLS and purchase as a primary residence (which enables the best possible financing terms) - move in & make repairs (that can be financed into the loan). The VA Renovation loan requires you hire contractors to perform work on the house that you must coordinate. You must essentially be the quarterback for the whole operation and it allows you to manage the entire process. The lender will push you to deliver results based on timelines as set forth by the guidelines. You gain a ton of experience while also having a safety net of other parties interested in the completion and success of the purchase/renovation. This loan is acceptable for a multifamily purchase as well, up to 4 units. The $10k will be used for the Earnest Money Deposit, and subsequent closing costs. After 1 year of living in the residence, depart from it and put a tenant into the home.

FHA Loan Investors: Similar to the VA Renovation Loan, FHA offers 2 types of Renovation Loans that fall under its 203(k) product: Standard and Limited. The main difference is that Limited = repairs less than $35k. Standard = Repairs greater than $35k. Standard 203(k) requires a HUD inspector to sign off on the repairs, a Limited 203(k) does not. Like the VA Renovation, you will quarterback the entire renovation process and you will have other parties pushing you along to meet deadlines. The repairs can be financed into the loan. Additionally, you must live in the property as a primary residence - which enables the best possible financing terms. The only downside to this is the $10k the investor has to put into the deal. FHA loans require 3.5% down, in addition to closing costs. I'd recommend a gift from a family member or friend to assist in this. After 1 year of living in the residence, depart from it and put a tenant into the home.

Conventional Investor: The conventional channel also offers a Renovation product with guidelines from both Fannie Mae and Freddie Mac, where the repairs can be financed into the loan. These are called HomeStyle, HomeStyle Limited, CHOICERenovation, and CHOICERenovation Limited. Both Limited options have a $25k Max on repairs, while the standard versions have no max renovation budget ($50k for manufactured homes). If the investor is a First Time Home Buyer (FTHB), they can utilize the 3% down conventional product, which would eat up the majority of their $10k savings. Any additional fees, like closing costs, would likely have to be borrowed by friends or family.

USDA Investor: Much like the VA, USDA is a 0% down loan. This too, has a renovation product but the structure of it is still in the works with a couple lenders. The repairs can be financed into the loan. The best thing about the USDA loan is that it's open to everyone and you don't have to be a veteran. This loan type, however is very specific about income, property type, and property location however. Each county in the US has a max allowable income limit that the investor can make. Being that $50k is the investor's income, they will likely qualify in any county. The property type must meet the requirements of the guidelines, as well as the allowable locations in the US, located on this map: https://eligibility.sc.egov.us... The investor can move into this home, fix it up, then depart the year after. The $10k can be used for closing costs.

Keep Your Cash: If you don't want to jump into a property just yet, keep your $$$ and keep adding to it. If you are serious about investing, take a 2nd or part time job in an entry level job within the industry. Many of them do not require you have any prior experience and the skills/network you gain will only help you in the future. For example, you can train on a RE Agent team as a transaction coordinator or as a junior agent. You can also become a loan processor, where you learn the ins and outs of purchase and refinance transactions. You can also can find a wholesale company and do the entry level work associated with that role - posting signs, calling potential leads, etc. Experience in a part of the industry will only make you smarter and make the industry know who you are.

Also - for the record, I would recommend house-hacking instead of doing this. 

@Eric Leach Initial cashflow in San Diego is difficult with 25% down (investment) or lower 0%-20% (owner occupied/house hack).  

I've gone from negative cashflow to positive cashflow on my local properties in 2 ways.  

1st way, which is how I started, I would just purchase a property retail with low money down. I made sure the property needed very little to no work because I had limited funds and barely knew how to screw in a light bulb. I would start by house hacking it then move out after a year to make it a full investment property.  Each year I would increase rents  until I broke even then eventually cashflow.  That is the easier way to get started especially if you don't have a lot of funds for value add.  One condo I purchased never made it out of the red (negative cashflow). However, I sold it recently, after 4 years, through a deferred 1031 exchange into a multifamily 4 unit property without additional funds out of pocket (technically zero down).

The 2nd way which I've done a couple of times, including this past summer...purchasing a property with value add potential. I purchased a triplex that was making $2,850/month between ALL 3 units, way below market and I was paying their utilities like water/sewer. Needless to say I started out about $2,500-$3,000 NEGATIVE cashflow each month. I renovated all 3 units within 3-4 months and increased rents to $7,825 with tenants paying their own utilities. Also, I am in the process of converting 2 single car garages on the property into a 1bed/1bath ADU which will increase rents another $2,000/month to get to around $10,000/month. There's nothing passive about investing in Real Estate.

Contrary to popular opinion on here, I prefer newbies get started with the first method, buying something move in ready in lieu of doing a major value add.  purchasing a fixer for the first property or something that needs a decent amount of work can be risky for someone just starting out with limited funds.  Construction costs often go over budget and end up behind schedule, this is true for professionals (I was in commercial construction for quite a few years) so it certainly would be the case for a newbie.  Imagine running out of funds in the middle of a rehab.  Buying a property that has out-dated finishes but is still livable would be ok since that work can be done slowly, overtime.

I personally started investing locally buying what I can afford with low money down and slowly rolling those into bigger properties.  It is certainly easier to get started locally than in a random market that happens to be cheaper unless you have ties to other markets that you know well or have family or trust worthy resources in (not just a PM and Realtor).  

@Gordon Park I am interested in starting or buying an existing mobile home park.

I would consider a partnership.