First timer here trying to do my homework. I have been a member of the local REI club, but that was a year ago. I’m finally able to do this financially.
Here is my objective… because I’ve been told several conflicting stories about the process locally.
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I’m targeting an area that I grew up in. My #1 criteria for area is the school zone. There are some areas of town where $80-90k houses are zoned for the same school (in the same general area) as $400k+ houses. School zones are general indicators of good and bad parts (including housing trend).
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Getting pre-approved for financing. I have full-time job, have some cash in hand, and am debt free (I rent… but without contract). I want to know exactly how much I can afford. I’m going to use $50k as a hard starting point because I don’t want to tie my credit up.
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With known area and price I’m looking for, I go house hunting. There are a couple in MLS that are enticing, but I feel that since times are so lean, that I need to look further. I’ve browsed the Legal Notices in the legal paper (which is not the newspaper). As far as I know, in this state it is non-judicial but they do have to list for 3 weeks.
I’ve set up 3 lists to track. My first list is what I think would be LOW EQUITY… notices on the list where the mortgage was pulled within the last 3 years. The second list is HIGH EQUITY… or where mortgage was pulled more than 10 years ago (even found one that was pulled 28 years ago). The third list, which is the smallest, is of subdivisions in my target area… I’ll call it my KNOWN AREA list.
Now I’m guessing I have 3 options… contact “homeowner”, contact “lender”, or show up at the courthouse auction. With any of the options, I go to the courthouse and pull the mortgage… find out where prop is and how much mortgage is for (some even tell me %rate, downpayment, min payments). From there I can look up tax value and search MLS to see if it is currently for sale. I can also calculate my max bid, (whether its to homeowner, lender, or on courthouse steps… which I guess is to the lender again?).
- For my first run of the three lists… I’m going to try to target at least 2. I’ll do my research and try to guess what the price it will go for on the courthouse steps if it makes it that far. I will create my own bid, just as if I were going to follow through.
The advantage I have with all of this is that I work in the courthouse. I have access to electronic databases that the general public must painstakingly search via paper manually. 1 block away is the public library, which contains a copy of the weekly legal notices. I can also sit on the courthouse steps during lunch and hear auctioneer.
I really feel that I have the tools to do this. Can anyone help me out with my direction?
bellamyj,
Are you interested in fixing and flipping a house, or in getting into a residence?
There have been several threads here on buying an owner-occupied house or duplex as a first real estate move. The financing is much easier to get for an owner-occupied place than an investment property.
You have made a great start in becoming a real estate investor–no debts, a job, and doing lots of research.
You are in a unique position with your courthouse job. We will be very interested in how you use that access to your advantage.
I believe your next step is to get pre-qualified by a mortgage lender. They will check your credit report too, and make sure there are no problems.
Good luck and keep us informed. It’s nice to know someone is doing the right things.
Furnishedowner
furnishedowner,
Thanks for the reply. I have a friend who has said I should look into multi-family, but I guess it’s just scary for a first timer. I guess I need to do more research on it to make myself more comfortable with the thought.
There are some nuances about dealing w/ multi-family vs. SFHs. We started with a multi. Having a few long-term tenants gave us a little feeling of security since we were just starting out. Of course everything can change at any time, but all these people were at below market rent so we figured they weren’t going anywhere.
Just realize your pool of potential buyers for a multi will be smaller than a SFH since not everyone wants to be a LL. If you get a SFH w/ a tenant on a month-to-month lease and decide you don’t like the whole LL thing, you could sell the SFH pretty easily (as long as you bought right and are asking a decent price).
Also realize anything w/ 5 or more units will fall into commercial financing w/ a whole different set of rules and requirements for lending too.
I just started looking at some duplexes on the MLS. Does anyone know how banks, or FHA handles blanket loans (if I want to do two) for first time buyer? There are some in my neighborhood that I grew up in that are in my price range. $500 /mo rent in the area would be pretty easy and that would give me $100 cash flow /mo for each filled unit ($200 /mo if both filled) using previous owners expenses and my financing with the 50% rule.
If you’re using the 50% rule as posted on here, your expenses are factored into the 50% operating expenses. I would take the seller’s expenses w/ a grain of salt. They may have been deferring a lot of maintenance in order to make their numbers better.
We just got a blanket commercial loan thru a local bank for 4 SFHs. It was no big deal. Professional presentation is key. Have your personal financials (list all your assets & liabilities) prepared to show the bank when you go in. Bring the last couple years of tax returns. Bring proof of your salary. Are these duplexes currently rented? How long have the tenants been there? What are the annual taxes? What would your insurance be? Give the bank as much pertinent information as you can so they don’t have lots of questions.
In our deal, all 4 houses were from the same owner, put under contract at one time, and all considered to be of equal value. The houses were all occupied. We brought all that information to the bank, got the loan, and were able to get another loan just a couple weeks later with no problems.
Just confirmed a little on the duplexes in my old neighborhood… plans a bust unless the owner comes up off of it A LOT (which is possibility if I prove my case). I do not know if they already have tenants because I don’t want to call the RE agent just yet. The owner lives in Long Beach CA, and these properties are in Alabama. He’s asking $16k over tax value (so they may have tenants?) but the list says “tax amount: $915” however Mr. Tax Collector says he’s paying $1023 in taxes + $700 in various fire dues, stom water fees, etc (total paid for '08 = $1,721.04) . His 3 props have been on market for 110days.
I’m still going to find out more about what financing I can get, and may even low ball this guy. I’m not going to waste my time too much with these particular ones though.