Hi all, I’m on the brink of getting involved in rei. I have come across a property in the “bad” part of town that is selling for under 20k. The property is a duplex and needs some work. I don’t own any property whatsoever. My goal is to renovate and rent. My question is, if i purchase the property, how difficult will it be to get a loan for the improvements.
Also, I plan on buying a sfh to live in. If I were to buy this property before I start hunting for my own sfh, how will this impact my mortgage.
Any advice you guys can give me would be greatly appreciated.
You need to first determine what the property is worth. Not what they are asking but what is the market worth of the property. The loan will be predicated on after repaired value of the property versus what you are paying for it. For example if it will take $10k to make the property market ready and the after repaired value of the property is $30k and you are looking to buy it for $20k that is a lot different than if the after repaired value is $80k and you are buying it for $20k with a $10k fix-up.
Most of the properties in the area are going for ~60k. However I’ve been noticing some new houses, as well as other houses that are being renovated. That along with news of a redevelopment plan in that area, makes me believe that the property will go up in value within 5 - 10 years. In the meantime the low price of the property and assuming that i can get full occupancy, the cashflow would be great.
Should I attempt to buy both properties in the same year, or will I be creating problems for myself?
I buy fix up and rent my houses. I have done 8 in a year with no problem. I would never buy only 1 side of a duplex. I would buy both sides or pass. Also I would not buy another one until the one I just bought was full. That is what paces me when I am buying. Think about it once the house is bought rehabbed and a tenant is in, you have nothing to do with it other than cash the rent check and pay the mortgage. That is what I am doing now and it is boring as heck.
You will also need the completed leases to show the mortgage companies going forward so that your debt to income does not become a problem. I found that if I bought a house it took more than 6 months for that mortgage to show up on my credit report. That means that I didn’t start having to show the leases for about a year. But just in case it is good to have them and it also covers the mortgage.
So what you’re saying is that i can buy the entire duplex, without affecting the mortgage I hope to get for the SFH I plan to live in. As long as I complete the transactions within six months of each other?
The example is that the duplex will have a payment Principle, Interest, Tax and Insurance (PITI) of $1000/month. You will get $600/month rental income per side or $1200/month. The mortgage company will allow you 80% of the rent to apply to your income or $960. That washes out.
Agreeing with Bluemoon. Try this strategy: buy the house to live in (owner-occupant financing is easier to get & has more favorable terms) live in it for a year or so while fixing it up, then move out and rent the whole thing out. Perfectly legal way to acquire a rental with less down and at a lower interest rate.
The key is you gotta occupy it for a year first. You can fix it up while you live there (assuming it’s habitable). You can probably repeat this strategy 5 times or so before the lenders cut you off. But by that time you have a portfolio of cashflowing rental homes purchased well below market.
landlording is not for everyone. I feel it is best to buy multi-family first as OO, maybe a 4plex and live in 1 unit and rent the other 3. The rent should cover your PITI. See how you like being a LL. If all is good, then look for another deal and if you like move out and rent that unit