Buying a Duplex Next Spring? Is it possible?

[djs13]

OK so let me just paint a quick picture of where I'm at. I'm 17 and I'm getting ready to go to college this January. I've been working on one business venture but in my spare time I'm obsessed with reading about real estate. I'll be living in a dorm from January to May but I'd like to buy a duplex and live in it when I turn 18 (on May 1st.)

I have a few things working against me but I'd like to know your opinion on how probable this would be.

I have roughly $4,500 in savings and I could get my parent's to sign on with me for a loan. My concept is to rent one unit while I live in the other. I've been told that my two biggest concerns would be if either of the units would need renovation (which would be difficult with my low funds) and the possibility of having to go to court with a tenant while dealing with school.

I'm eventually going to transfer to a 4-year school and I could either sell the duplex or hire a property management company.

Would I have sufficient funding for a down payment? Do you think this would be worthwhile?

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Yankees338]

I'm thinking about something similar, probably during my sophomore year of school. However, I'm planning to go with a quadruplex because there are two extra units to rent out, and you can still get owner occupied financing.

Would a construction loan be applicable to this scenario if you needed to rehab a bit?

 

[MsMoney]

Have you talked to a lender yet? I would suggest finding a lender (maybe ask your parents if they have someone they trust) and discuss with this person what your plans are. Ask them what types of loans they have that could assist you in doing this. There may be some first time buyer loans available too.

The only problem right now is that the lending industry is changing EVERYDAY....so I can almost guarantee you that in the Spring there will be different products available.

Either way, you should have a game plan and "roughly" have an idea what will be needed (money wise) from you. Who knows, you may not need to have your parents co-sign.

I would also suggest in talking to any local credit unions, as they do their own underwriting and have their own guidelines.

Another place to research a bit is find out if your community and your state has any first time buyer assistance programs and what they require of you.

I would love to hear what happens, so please keep us informed.

 

[yveskleinsky]

I'm with Yankees- go with a quad if at all possible. The more units=less risk/vacancy and generally higher cash flow.

...And sure it's possible.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Bilgefisher]

I think its very possible with owner financing. If you can get into a quad, it may cover all your home expenses, while a duplex may only cover 2/3. Either, its a very smart move. The down payment may be a touch higher if you have no credit history.

As an option try going in halves with your folks. You provide the landlord services and some of your savings, they supply the credit history, stated income and rest of the down payment. Might work the best for both of you. Win/Win.

 

[djs13]

Thanks for the advice everyone. I was thinking about quoting everyone and responding but I think it might just be easier to number out my questions.

1.) I'll definitely look into a quad versus a duplex. My biggest concern is the downpayment. As I said I have a little more than $4k so if the minimum was 10% down I only have about $40,000 worth of leverage which couldn't really do much. I can probably get a small loan worth $1k or $2k from my parents (just an estimate) if I had to. My parents aren't the investing type so I'd have to learn some negotiating skills.

2.) I have not talked to a lender yet. I plan on going to college about three hours away so I'm assuming I'd have to check out a local bank there. Would it be best to go there this January and just talk to them about my plan and have them tell me my options?

3.) I'll read more about owner financing.

 

[hatterasguy]

Do you have a full time job?

I'm going to WAG and say probably part time?

What will hurt you in that case is no income, and no credit history. So a bank won't led to you. However if you can get your parents to front at least some of the money you can probably make it work. A hard money lender is going to want some blood in the deal, so you would need to come up with some cash.

Owning financing will probably be your only option.

What you need to find is a really, screaming good deal. Something so good it attracts money.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[kidgas]

I would definitely go with the quad since you will still qualify for owner occupied financing but have the ability to offset a vacancy with 2 other units. You will likely have to have more available for a down payment. Consider owner financing or a shared equity agreement with parents or another family member. It would be best to approach any potential investor with well researched information.

Finally, make sure you save some money for repairs, etc. You don't want to blow all your money and then have the water heater go out. Don't let fear paralyze you.

 

[MsMoney]

I would still talk to a lender. Even if you end up going owner financing...sometimes they'll just work with the down only. Either way, as you get closer to your 18th birthday....I would talk to a lender. You don't need to commit to anyone, or even run your credit (eventually they will have to though)....but you want to get information.

Make a list of questions ahead of time to ask the lender(s). If you are going into investing, you might as well start building relationships too.....



No. ... You don't have to see someone where ever you are going to school. I would encourage you though to really look at all your options....even talk to your school guidance counselor and see if there are any loan programs for students. Either way, you have plenty of time to look at all your options.

Consider yourself on a fact finding mission and see where it takes you. Still be on the look out for "owner financing" options too though....you can get REALLY great deals right now on them.

Or maybe look into, AITD's (All Inclusive Trust Deeds). I just got one with $10,000 down, $350,000 loan amount, $1800 PITI, 6% 30 yr fixed, 24 more years on the loan....currently there is a tenant in the home (4+2) in an older area (built in the 1980s) ..... but great area to rent. The homes over there at the top of the market were going in the low $500's. So, I'm just going to rent it and when the market is up enough sell it, and put the money into other things....

Keep us posted as to what you find out....

 

[djs13]

Do you have a full time job?

I'm going to WAG and say probably part time?

What will hurt you in that case is no income, and no credit history. So a bank won't led to you. However if you can get your parents to front at least some of the money you can probably make it work. A hard money lender is going to want some blood in the deal, so you would need to come up with some cash.

Owning financing will probably be your only option.

What you need to find is a really, screaming good deal. Something so good it attracts money.

I have a small part time job. But as I said I'm going to college, so I wouldn't even be able to pull off a full-time job. I might not even get a part-time job this January if it interferes with my grades.

I would definitely go with the quad since you will still qualify for owner occupied financing but have the ability to offset a vacancy with 2 other units. You will likely have to have more available for a down payment. Consider owner financing or a shared equity agreement with parents or another family member. It would be best to approach any potential investor with well researched information.

Finally, make sure you save some money for repairs, etc. You don't want to blow all your money and then have the water heater go out. Don't let fear paralyze you.

Sorry for the complete noob questions, but I only have a general understanding of owner financing. From what I've heard it's basically just the owner taking the role of the bank. But wouldn't this deny him the large chunk of cash he would normally receive from the closing? Would I just ask every potential seller if they would be interested in owner financing?

Or maybe look into, AITD's (All Inclusive Trust Deeds). I just got one with $10,000 down, $350,000 loan amount, $1800 PITI, 6% 30 yr fixed, 24 more years on the loan....currently there is a tenant in the home (4+2) in an older area (built in the 1980s) ..... but great area to rent. The homes over there at the top of the market were going in the low $500's. So, I'm just going to rent it and when the market is up enough sell it, and put the money into other things....

Keep us posted as to what you find out....

Thank you for the advice. It's confusing because I'm reading a huge amount of REI books right now and I love it. But I've never actually went through the home buying experience so I'm trying to learn about evaluating deals and creating my inner circle but at the same time learning basic stuff that's not even in the books but just assumed by the author that the reader knows it. I'll keep you updated.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[hatterasguy]

IMHO your best bet to make this work is to find a screaming deal. If you can find a deal with at least $200k meat on it, you might be able to get some control of it with no money and experiance. The meat should get you the money, and maybe a partner, IE it helps problems solve themselves.


You need to find a property thats worth $400k for $150k(or less). Than maybe get your parents or the owners to hold back/invest say $50k. Than you can get a partner to go in with you. IMHO finding an experianced partner would be worth it your first time out, its a learning experiance.

Those deals exist, but you have to look.

 

[phlgirl]

Bravo to you for taking the initiative, at such an early age. The payoff could be substantial, for both you and your parents. I know people who did this while I was in college. Some of them made made hundreds of thousands in equity by the time school was over - not to mention the fact that they lived for free throughout college.

If your parents are willing to co-sign (or sign altogether), you may want to talk to lenders about the FHA program. It allows for a much higher LTV - 95%+ and will allow for less than stellar credit. The income, however, must be consistent and provable.

I think it is a great idea. You will learn a lot about running a small business, while getting your education. Do the bookkeeping yourself, manage the property, etc.

I would give yourself 6 months lead time to start looking at properties in your new market. Being on campus and about town will help you get an understanding of where people want to live and what rents are in different neighborhoods. Study your market and look at LOTS of properties. The more you see, the more you learn.

Best of luck to you and, again, I think it’s fabulous that you are thinking ahead about this possibility. Feel free to post potential deals here and we can review them with you.