Buying First House Investment/Live In

[brad87]

I'm new to the forums, so hello to everyone!

Anyways I will keep it quick as I can and try not to scare anyone away with a long post.

Me and my friend are both 20 years old and looking to buy a home or condo to live in for one or less years.

I have a fluctuating income of $1200-$4000 monthly and my friend has an income of $2500 a month. We also both have FICO scores of approximately 710, however only a two year+ credit history.

We want this property as an investment, as both of us will be transferring colleges in a year or less. We plan to sell it before that time, or rent it out.

Our area we are looking to buy is within 30 miles of Pasadena, California in Southern California. Houses around here seem to go from $400-$600 thousand on average, with still many above that mark. We are looking for a three or four bedroom house, and will hopefully rent the additional rooms out.

Me and my father are very proficient in house repairs, from electrical to plumbing, and from flooring to landscaping, we have covered many aspects of home remodeling, so a fixer upper may be great for us.

Also we are looking to buy as soon as possible, but will absolutely not rush into a bad deal for us.

All that being said, my questions are as follows:

Would it be beneficial to buy a foreclosed home if we could find one?

What are the key facts to know about taxes when buying a home?

With our incomes does buying a home seem safe? (We are splitting everything 50/50)

In regards to a loan, we were hoping to find an interest only option loan, with a very low down payment, any advice on the loan specifically?

What are common aspects that home investors overlook?

With our credit history being so minimal, can we even get approved?

Lastly what are some good sources for looking for homes/condos

Any other tips are greatly appreciated. Also I understand when people just jump on forums looking for quick help it can seem rude, so I apologize if that is the impression I gave. I'm just looking for some quality help, and with reading posts from others this seems like a great place to post. Anyways thank you in advance to anyone who can offer some quality advice.

[PaulBroni]

Buying a house that you plan to sell in less than a year usually does not make any sense as the transaction costs will kill you. Only if you buy a property at a good discount does this become logical.

I have no idea if you and your friend will qualify for a loan. There are others here who know more about that. You don't seem to have the income to support a $400,000 note, however, and I assume that you don't have a huge down payment.

The idea that you might rent rooms to pay the note worries me. This sounds "iffy" at best. I would not hinge my ability to service my debt on renting out rooms.

If you want to buy a fixer-upper and renovate it while you live in it, that could make a lot of sense. You'll do better tax-wise (paying capital gains instead of ordinary income rates), and you should make some money, too. If you really buy the house right, you might even be able to roll some of the interest carry into your renovation budget.

Oh, as for renting post-completion, I doubt that the property would rent for anywhere near what your mortgage payment will be.

[brad87]

Buying a house that you plan to sell in less than a year usually does not make any sense as the transaction costs will kill you. Only if you buy a property at a good discount does this become logical.


We definitely will not settle for anything less then a great deal. What kind of transaction costs are we talking about here?

I have no idea if you and your friend will qualify for a loan. There are others here who know more about that. You don't seem to have the income to support a $400,000 note, however, and I assume that you don't have a huge down payment.


I believe our incomes can  support a $400k loan. We have access to a broker who is a very close friend to us. Though we have not talked to him about the logistics of the loan we are looking for yet, he has a huge amount of options. Such as a neg amm "Pick a payment loan" which may work very well for us. I'm fairly certain we can afford it, but would be happy to hear some experts opinions.

The idea that you might rent rooms to pay the note worries me. This sounds "iffy" at best. I would not hinge my ability to service my debt on renting out rooms.

We have another friend who would like to rent a room out. So three of us would be living in it at once (If we got a three bedroom)

If you want to buy a fixer-upper and renovate it while you live in it, that could make a lot of sense. You'll do better tax-wise (paying capital gains instead of ordinary income rates), and you should make some money, too. If you really buy the house right, you might even be able to roll some of the interest carry into your renovation budget.

We are definitely realizing we will need a fixer upper to fit our plans. We are also willing to live in it why fixing it up.

Oh, as for renting post-completion, I doubt that the property would rent for anywhere near what your mortgage payment will be.

My math would say otherwise, any other opinions on this.


Overall Paul, thanks for the info, it woke me up on quite a few issues and I appreciate you taking the time. That being said, if others would be willing to chime in as well I would greatly appreciate it.

Thanks, Brad

[brad87]

I guess I'm not too popular here. Anyways we have talked to our contact who is a broker, and he is certain we will get approved for something, so I'm not worried about "getting" the loan, really just concerned of the specifics of the loan, but I guess that will have to wait until we find a place, that is if we proceed with this.

Any other insight into my other questions?

Thanks in advanced

--Brad

[DeeinAustin]

I guess I'm not too popular here. Anyways we have talked to our contact who is a broker, and he is certain we will get approved for something, so I'm not worried about "getting" the loan, really just concerned of the specifics of the loan, but I guess that will have to wait until we find a place, that is if we proceed with this.

Any other insight into my other questions?

Thanks in advanced

--Brad

Just some tips... You have about 7 questions in this one post. The purpose of the forum is to get/give advice that others can learn from too. Sometimes if a member has time, they can try to give advice on your particular sitiation, but really long posts with multiple questions are tough for most people to read.

Someone will probably take time to respond and I may be able to once I can muster up the energy later.

1. Books and your local REIclub are for getting answers to tons of questions so you can figure out what's best for you.
2. It sounds like you need to get an advisor or take a local investor to lunch to pick their brain.

[reihooked]

I think you should learn about short sales.  There are a lot of people in the area that took out loans that they could not afford because their broker was able to get them approved, I think this is where the deals are going to be.

[Serio]

I don't think a house worth $400K would rent, and if it did, it would surely have a negative cash flow.  Lets look at it:

At 6.5% for 30 years a $400K loan would be $2,528.27 a month.

With that being said, that means the gross rent would have to be about $5200, I don't know many houses that rent for that much.

Adam

[NJREstudent]

Such as a neg amm "Pick a payment loan" which may work very well for us

If you need a negative ammortizing loan to make this work, I would NOT do this.  Many of these "exotic" loans are what got a lot of people in trouble to begin with.  Just because a mortgage broker can get you one of these loans, I would really figure out if this is viable.  Most businesses fail because of lack of working capital or funding.  Suppose you cannot sell in a year, but have to wait it out for 2 or three.... can you afford the rehab and holding costs?  Factor in the neg amortization, transaction fees and you may come out upside down.  Whats your expected upside on this deal?  For the amount of risk you seem to be taking, the profit should be large.  Personally, I wouldnt do this as my first investment, but please give some more details.

[brad87]

Well firstly, I do agree this post was very demanding, so sorry for all the questions.

Ok let me stick with one question for now, what is a good source to start looking for good investment homes?

I think once I can get about 10+ houses to look at, I can then work out more of the logistics. It is obvious I will need to get a very good deal for this to work. Once I actually find some homes I think it will be easier to see if this is going to be at all possible.

Anyways thanks for the input thus far

--Brad

[joker]

Honestly i wouldnt go into any kind of business deal with a friend or even a partner. Most of the great deals will be bank owned foreclosures in the near future so watch out for them.

[brad87]

I'm willing to sit back, if I can't find something well worth it I wouldn't do it anyways. What is a good source to look for foreclosed homes?

Thanks, Brad

[brad87]

Just looking for some sources that sell foreclosures. Anyone willing to point me in the right direction, I don't want to signup for some site that ends up being a dud.

Thanks, Brad

[brad87]

Anyone?

[brad87]

Can anyone just please give me some sources for looking for forclosures?

--Brad

[soholingo]

You can find preforclosures in the legal notices section of your newspaper.

Jay