Newbie Needs Advice On Possible Residential Into Commercial
I want to begin investing in multi family units however I am a complete newbie with bad credit, no-low income and starting from scratch.
My mother has put me in charge of selling our NY home (she lives in CT) because I am a new Realtor. The FMV of the SFH is around 550k but I am sure that she would gladly sell it to me for 400k if I asked. The Single family house can be converted into a 2 family house and be easily rented out at 1300 per apartment. In addition to that, I am sure that she would loan me 100k to be used for improvements or for the down payment (whichever you guys suggest). This 100k does need to get paid back monthly at no interest .
So my first question would be if i can even get a mortgage with my current situation and be in ok shape after the 2600 in monthly rent? (actually 2 questions huh..)
Secondly, If I can get the mortgage somehow, Is it possible for me to use that as a spring-board for getting a commercial multi-family unit?
At my disposal are,
1) a flexible mother very willing to help and
2) two cousins with 750+ credit and excellent income asking me to find them investment properties.
I would however like to do as much of this I can all on my own without too much unecessary help from the family.
Thanks for any inputs you may have.
I think instead of renting those two divided house you could either sell at least one for around 300K and pay your mother the same, then you will have another house probably 300k , with 100k you will owe to your mother. leaving you an equity of 200K.
With 200k equity as down payment you can certainly find a property between 800K and 1.6Mil, and go in a 1031 exchange deal. This is all without much more help from your family.
Sorry for the misunderstanding.
Our home is Walk-in level basement, 1st floor and 2nd floor. The 2nd floor can be converted into its own seperate apartment but is still part of the house so it cannot be sold seperately. If i leave it as it is, i can rent the house for 2000, if it becomes converted into a legal 2 family, rent can fetch 2800. Renovations will cost around 60k and I will also need to pay more on a the property tax of a 2-family house.
I am not sure that a quick resell would work in my situation because it would just look like i have just charged my mom a 150k brokers commission by reselling it so fast at market value as opposed to making it seem more like an investment for myself. P.S. I currently live in the house now if that changes anything.
Would a bank even give me the mortgage if they see that I am buying a house for 150k under FMV and am able to put up 50-100k (depending on whether I renovate) if my credit is not good and I am on the income of a brand new Realtor (basically no-low reported income).
Also can you recommend me a book on Commercial multi family investing because there seems to be too many authors on every subject nowadays.
thanks for the responses guys,
Here is where I am at now.
I spoke with a loan officer and he said that my credit score is:
equifax- 678
trans union- 689
experian- 663
He said he could get me a rate of 6.5% with no income check and my monthly mortgage payments would be around 2500 a month including property taxes and insurance. (this is only the first place i spoke with so i am hoping that another better deal is out there) The loan was for 300k on a 550k property.
I thought that i would have to hold the house for one year to pay less in capital gains. I was thinking to either sell the house after one year or hold onto it and use the remaining equity of around 250k to get me a commerical apartment building with enough cashflow to cover both mortgages. The residential will basically cover itself + the fact that I will be living there myself so the excess costs could just be seen as me paying some rent.
Is it better to sell off and have the money in the bank for getting the commercial loan or should i use the remaining equity as leverage. Also please tell me where taxes come in. My mom had purchased the house 25yrs ago at 50k and now its 550k. Does she pay taxes on that gain and does it matter if on paper she says she is selling the property to me for 400k as opposed to 550k.(she will reimburse me the difference anyways)
I also possibly have access 100k in private funds from friends and family if any of your solutions would work best with that, but i dont know what agreements would typically be used for private investors.
AHHHH soooo many more questions i still have but just these for now...Thanks guys.
as for covering the mortgage while the house is vacant i had intended to bring in one of the cousins mentioned (she has 200k saved up and looking to invest in real estate but i would try to borrow as little as possible which is why i asked what sort of agreements i should offer her so that we will both benefit). I do not expect the house value to go up or down. Similar houses have been on the market for 600k and i was just using a conservative estimate of 550k. i was told i had to hold onto the house for 2 years before i resell for tax reasons. My loan officer suggested i get an "option-in" and pay 3.25% interest on the first year and then pay prime on following years assuming i plan on selling on the 24th month. My loan officer said that i would have to wait 2 months before using the remaining equity on a multi family unit. As for my living arrangements, I had intended to completely renovate our walkin basement for me to stay in (its actually quite nice already).
Seems like no one here thinks it wise for me to purchase a 550k-600k house for 400k with private funds at my disposal. My main goal here is to purchase of 10+ multifamily units in the future. Is this purchase not an opportunity for me to actually reach that goal? I am not trying to get cashflow from the residential deal. I am trying to secure the property so that i have money either in the form of future equity in the house or to have actual cash in the bank from the future sale to use for the downpayment of a commercial unit.