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How to Buy Your First Investment

For some reason, everyone thinks it is impossible to buy a house. Even though they hear stories time and time again where people bought houses with little to no money down. If you want to buy a house you can set yourself up to do so within a year at the longest. It is not always easy but everyone can do it if you take the right steps. 

Find a Lender

The first step you should take as an aspiring home buyer is to talk with a lender. Lenders are the most underused asset. Most people just find a lender when they are about to buy a home or about to offer on a house. However, lenders can offer a lot more to a home buyer. 

I advise you to sit down with a lender even if you do not think you are winning a spot to buy a house. They will look at your financials, credit score, and job. A lender will then be able to tell you certain things you need to do to set yourself up to buy a home. 

Doing this sooner rather than later will put you in a good spot to buy a home a lot quicker than if you were to try and do this on your own. 

Pick Your Loan Type

There are many types of loans out there to take advantage of, and I will outline the most popular ones and how you can use them to your advantage.

1. Conventional

A conventional loan is my go-to when investing in anything under 4 units. You can use a conventional loan for a single-family home and complex up to 4 units. You do not get as good interest rates as an FHA loan, but there are fewer hoops you have to jump through. For a primary residence (where you will live at the home), you usually will have to put down 5% of the total price. For an investment property (where you are not going to live there), you typically have to put down 15-25% depending on the lender. Conventional loans have different term options ranging from 5 to 30 years; most people usually do 30 years.

2. FHA

An FHA loan is used for a single-family home to 4-plex. With an FHA loan, the property must meet specific standards, and a special inspection needs to be done. When using an FHA loan, make sure the property fits the criteria and if not, look into a conventional loan. Using an FHA loan for a primary residence, you usually only have to put down 3-5% of the total purchase price. FHA loans have different term options ranging from 5-30 years; most people typically do 30- year loans.

3. VA Loans

If you were in the military, they offer great loan options, and some are so awesome that you can get away with putting 0% down. Meaning you can essentially buy a house for $0. If you were in the military, make sure to look into VA loans.

4. Commercial

Commercial loans are needed to purchase any business or complex with 5 or more units. Commercial loans usually have 5-20 year term options, and every 5 years, the rate will change. Every commercial loan is different, and honestly, in my experience, the most complex loan to get when you are starting out. However, once you find an excellent commercial lender to work with, getting commercial loans becomes a lot easier.

5. Hard money loans 

Hard money loans are fantastic but come with risks. Hard money lenders will let you put little to nothing down but give you super-high interest rates. If you want to use hard money or private money lenders, make sure you do your research and find out if it is right for you. Hard money lenders are typically used when someone doesn’t have the cash to buy a property. Then after the person fixes the property up or brings value to it, they will refinance it under a conventional loan and get better interest rates. This strategy is known as the BRRR strategy, and if you want to learn more about it, research the BRRR strategy.

6. Seller financing

Seller financing is when the seller is the lender. Typically for this to work, the seller has to own the house outright, and you pay them as the bank. When doing this, you will need a lawyer to write up a note, and the property is still under your name if done correctly. This is great because you and the seller can determine how you want the loan set up. You can get better rates and if you cannot qualify for a loan for some reason, seller financing is always an option.

Find a Realtor and View Properties

Finding the right realtor can be stressful and feel tricky. I suggest you find someone who you feel is knowledgeable and who you feel you can trust. It is important to sit down with different realtors and ask them questions you may have before signing any paperwork with them. 

After you find the right realtor for you, ask them to set up a listing alert on the MLS. This way each time a property comes on the market that fits your parameters you will get an alert. Ask your realtor to set up a housing tour and go see as many houses as possible. It is important to look at different houses so you can really decide what you want. 

For example; If you are wanting to buy a duplex go and look at all the different types. See what type of tenants are in there, what the rents are, and the condition of the property. 

Buy the Property

You saved money, learned how to analyze deals, talked with a lender, and viewed properties with a realtor. Now it is time to buy the property! This is exciting but at the same time, you are nervous. After viewing the home go back to your numbers. Sit down and analyze the deal again. 

Get a pre-approval from your lender and find out what your mortgage would be on the property. Analyze your numbers and when you are sure it’s a good deal tell your realtor to write up an offer! 

On your first property, it is important to take inspections and your due diligence period seriously. Make sure to not cut corners and analyze the numbers as accurately as possible. 

Three Ways to Make Money of Your First Home

Buying a single-family home:

If you want to get into a single-family home, roommates would be the way to make money. You can buy the house with 3-5% down, and as long as your roommates pay more than your mortgage, you have a great deal. Let’s say you bought a 4 bed two bath house for $300,000, and your mortgage was $1,750 a month. You find three roommates that pay $750 each, and you all split the utilities. You will be making $500 each month, you will be living for free, and your roommates are paying off your home.

Buying a multi-family home:

If you want to get into a multi-unit up to a 4-plex, you can rent out the units you are not in. Let’s say you buy a fourplex for $375,000, and your mortgage is $2,000 a month. You rent out three units for $1,000 each, and they pay their own utilities. Now you are making $1,000 a month, plus living for free, and your tenants are paying off your house. Plus, let’s say you get a roommate for $500 a month; that is even more money in your pocket.

Buying a fixer-upper:

Depending on where you want to buy, the two examples we just went over might be tough to come by. It is tough to find places that have cash flow in some areas. If that is the case in your area, a fixer-upper is a way to go. You can live in the property, so you can put 3- 5% down while you are fixing the property up. After you fix the property up, you can live in it, sell it, have roommates, or rent it out. After you are done fixing the property, you can essentially go and buy another house with 3-5% down to live in and rent out the first one. You can repeat this process over and over again if you please.

Four things to keep in mind when buying your first investment

  1. When starting, never buy something you cannot pay the mortgage on each month with your regular job.

  2. Get creative when looking at properties to see how you can make money from them.

  3. Try to find places with cash flow, and if not, buy fixer-uppers that will cash flow once fixed.

  4. Research the type of loan you are getting and understand your different options for each purchase.

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