All Forum Posts by: Michael Paling

Several years ago I decided that my first home purchase was going to be a duplex to house hack. I successfully did that last year and I’m working on deals 2 and 3 now. To get over that first deal, I finally realized I was in a financial situation where I could confidently purchase my first house. I posted an intro post here on BP and connected with other local investors and being around them have me the the mental confidence to know I could do this. I’d suggest the same for you: make a post and use key words around your area like city names so that other local investors might get notifications. If there’s no local meetups, try to start one yourself. You don’t have to know real estate stuff to set up a meeting with people. 

Quote from @Michael L.:

Quote from @Michael Paling:

Quote from @Michael L.:

Quote from @Michael Paling:

I think Eliott brings up a good point. If your plans are to purchase a property through seller financing and just turn around and refinance it, why not just start out with the bank loan? You could probably find a loan from some lender that will include or have ideas on how to fund the purchase costs and the rehab costs. Talk with some local lenders AND investors, because you'll probably be given some good ideas for this. 

 @Michael Paling, as I explained to @Eliot Elias, doin the owner finance allows me to adjust my dp meaning less upfront cost. But I will calculate the differences in the cost of transactions for both strategies.

if your goal is to purchase the property with as little money out of your own pocket, you could also try to find a lender that allows the seller to carry the down payment through seller financing. So the bank could finance 80% (for example) and the seller finances somewhere between 0 and 20% and you cover the rest. That way you don't have the extra closing costs for multiple bank loans.  

 @Michael Paling, I've never heard of that method and when speaking to lenders I haven't had none mention it. But in that scenario, you're basically on the hook with the bank and the lender, correct? An is that all done in one closing?

I haven’t actually done this myself, so I don’t know all the technical workings of it. I’ve had some other investors chat with me about this though. You could ask lenders “can the seller finance the down payment?” Or “can the seller carry a second mortgage?”. A second mortgage would be the seller financing part of the costs (the down payment) through a note held in second place to the bank. If you were to default and were foreclosed on, the bank would have the right to everything first and whatever is left after the bank is made whole would belong to the seller. At least that’s my understanding. There’s several questions I now have after typing all this out. Lol

Hey Mario, 

First off, way to go at getting this all started so early! I wish I was as smart as you at that age. If I was you, I would be trying to connect with local investors. I see you've been asking other questions here on BP, so keep doing that, but also find some local investors to chat with. If you're able to make a good relationship with someone, maybe there's potential to partner with them? One hurdle that you'll deal with is being younger than 18, because I don't think you can legally purchase property until 18. You could talk with your parents about working with them to buy as well. 

Other than that, keep saving and building up your marketing business. If $3k is your entire savings at the moment, you should really focus on building that up, because real estate investing is not a cheap business, and you need reserves on top of purchasing costs (down payment, closing costs, rent ready costs, etc.). Don't rush this and learn to enjoy the process and learning. You've got so much time ahead of you, but 10 years from now, you will look back and thank yourself. 

Quote from @Michael L.:

Quote from @Michael Paling:

I think Eliott brings up a good point. If your plans are to purchase a property through seller financing and just turn around and refinance it, why not just start out with the bank loan? You could probably find a loan from some lender that will include or have ideas on how to fund the purchase costs and the rehab costs. Talk with some local lenders AND investors, because you'll probably be given some good ideas for this. 

 @Michael Paling, as I explained to @Eliot Elias, doin the owner finance allows me to adjust my dp meaning less upfront cost. But I will calculate the differences in the cost of transactions for both strategies.

if your goal is to purchase the property with as little money out of your own pocket, you could also try to find a lender that allows the seller to carry the down payment through seller financing. So the bank could finance 80% (for example) and the seller finances somewhere between 0 and 20% and you cover the rest. That way you don't have the extra closing costs for multiple bank loans.  

I think this is a great idea. I'm always up for chatting and meeting others. I've read many different REI books and rereading them in some cases. I'm happy to chat with anyone that's interested. Send me a DM.

I think Eliott brings up a good point. If your plans are to purchase a property through seller financing and just turn around and refinance it, why not just start out with the bank loan? You could probably find a loan from some lender that will include or have ideas on how to fund the purchase costs and the rehab costs. Talk with some local lenders AND investors, because you'll probably be given some good ideas for this. 

Why not use those loan programs to purchase a small multifamily to House hack? You can purchase it to live in one unit for a year and rent out the rest. Or a single-family property and rent out a couple rooms?

Also, since you mention that you have little to no money saved for a downpayment, you should also make sure that you have enough money saved (or access to some) to cover any emergencies (furnace goes out, tentant stops paying rent, etc. Having reserves is very important and one thing that Brandon Turner has mentioned several times is that "while there are ways to purchase properties with no money down, that doesn't mean you don't have any money." If you have enough reserves set aside, then you should be ok, but it's an important thing to remember. 

The rent is guaranteed as long as the tenant stays in good standing with the program. You're still going to need to screen the tenant regardless of section 8 or not, and if your property is higher quality than others in the area (do most rentals have solar panels?), then you could probably find a pretty good non-section 8 tenant that you wouldn't have issues collecting their rent. Then you wouldn't have to bother with the government program stuff. Also check what the section 8 Housing Authority will pay compared to non-section 8 rentals. Section 8 could be good, but don't limit yourself to it. Just use it as another tool in your toolbox. 

Hey Shankar, my first thought is that if you're having to ask random investors online if this is a good deal, are you trying to bite off more than you should? Could you find some local investors to ask? and what does "a little renovations" mean? are you accounting for all maintenance, CapEx, and vacancy costs too? what would be the NET income after accounting for all of that? Having a gross income of $10k a month won't matter if all the operating expenses (maintenance, CapEx, vacancy, taxes, insurance) and financing costs (principle, interest) total $10k a month too. If you haven't yet, I would suggest running this through the BiggerPockets calculators and then share those results with us (go to "tools" at the top of the site, then "Rental property calculator"). Doing that will help us give you specific feedback on what numbers may be good or bad. 

Most people will go through analysis paralysis to some extent. After getting my first property last year, I learned that it can still be present after the first one, but you can manage the worries easier. If you haven't already, go find local investors, join meetups, and just start building relationships with other successful people that are doing what you want to do. Just being around these kinds of people will give you that mental kick to take the next step and make the leap of faith you need. They'll also be great support for when you have questions and need local help. Every time I leave our monthly meeting, I feel like my head is spinning with ideas and that keeps me moving forward. Without them, I wouldn't have started.