Hey!
I know a lot of newer investors come on here looking for information on how to get started. We are in the middle of our 1st/2nd deal right now and thought we would open ourselves up to questions and comments while we are in the thick of things and can give some specifics regarding FHA/duplex purchase and we are both self employed at 30/35.
We were living in Germany (I am a German citizen, my wife is American) prior to making the move back to Cleveland in 2013. I had zero credit, and we didn’t have the two-year income history needed when you are self-employed. We borrowed some cash from my parents to purchase a home for $13,000 with approximately $20,000 held in escrow for the Cleveland Heights Point of Sale. New roof, new plumbing, and a ton of sweat equity.
Three years later, Amanda is working as a Realtor, and I have two General Contracting companies. One is a partnership and handles commercial projects, the other is a LLC and handles small projects like kitchen or bath renovations. We literally went from making $14,000 our first year back to now in the low 110s by the end of this year.
Between 14k in 2016 and 70k in 2017 and trending upwards for 2018, we were prequalified for 150k loan, assuming 10k in taxes and 5% down. Our planned purchase would both NOT be dependent on the sale of our current home, but would also NOT use the income from our current home. We wanted to start conservatively even though we will be renting out our house for $1050-1150 a month. For other newbies, this means that while it doesn’t help or really hurt us too much, about $200 a month in property taxes and $70 a month in homeowners insurance does count against us for qualifying. Our lender told us they could take 75% of the estimated market rent towards helping us qualify. We decided against this, since 150k is generally enough for a solid home in a B/B+ neighborhood in Northeast Ohio.
We are now in contract for a duplex in the Old Brooklyn neighborhood of Cleveland. House was on the "market" (FSBO) for $92k, while calling, the owner told it was $89k. We offered $84k. And house would be still cash flowing $160 a month at 89,000, even after taking off property management fees and all the other costs in the BiggerPockets rental calculator.
The owner told us he would feel better giving us the house at $81k. $3,000 less than we offered. Biggest lesson: BE NICE. SHOW UP ON TIME. IF THEY WANT TO TAKE UP AN EXTRA 20 MINUTES OF YOUR TIME AND JUST TALK, BE A DECENT PERSON AND LISTEN.
This guy was an old-timer, well-off and he said he just liked us because we confirmed times to show up for viewing the house and never tried to act too cool for the property or totally low-ball him. He also was ok with us going FHA, since I am a contractor and our lender let us know it doesn't matter who makes the repairs in the appraiser's view. When the appraiser came back dinging paint that needed to be touched up and glass that needed to be replaced, we spend 6 hours there and knocked everything out before the weather changed too much. After a $150 re-inspection fee, we will be bringing $9,500 to the table for a down payment and closing costs instead of closer to $18,000 for the 15% down payment and closing costs our lender would need for a conventional duplex loan.
Upper unit will rent for $550 (2 bed, but one is very small) and lower will rent for $700 when we decide we aren’t interested in living there anymore. Taxes are just under $1750.
We wrote up the contract on 10/30/18. Closing is set for early December, but lender sees no reason we can’t close before Thanksgiving since we were all set with paperwork and every request for further documentation we jumped on within 24 hours.
If anyone wants more detailed information, please feel free to ask. My wife is a Realtor in the Cleveland area, and we are both open books, so questions that people forget about after their 8th deal are still very fresh to us, seeing as we are in the middle of the whole process.
