Author Topic: First-time home shopper, looking at duplexes  (Read 1737 times)

lexde

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First-time home shopper, looking at duplexes
« on: July 01, 2018, 07:20:15 PM »
I'm looking at a few multi-unit properties in my area in the $300-350K range.

I've never applied for a mortgage before, but my Realtor requires pre-approval before viewing properties (which seems a bit weird...) so I went ahead and got pre-approved by Rocket Loans after finding a property I am actually interested in. I've been window-shopping for about 18 months, and this one property appears to check all of my boxes and is listed at $299.9k.

I've been looking into different mortgage programs and wanted to get input on what you guys think I should get.

There is always FHA since I am a first time buyer;
Also conventional 30-year mortgage (will require 15% down minimum);
I also saw a professional mortgage from BBVA Compass Bank for attorneys that offers a low down payment (5%?) with no PMI.

I am not experienced in mortgage shopping and definitely don't want to get screwed over. Does anyone have insight/recommendations/advice?

Thanks.




Another Reader

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Re: First-time home shopper, looking at duplexes
« Reply #1 on: July 01, 2018, 08:10:18 PM »
A good agent requires you to be pre-qualified because they don't want to waste time with buyers that can't buy.  As commissioned sales people, they don't get paid unless the sale closes.

There is a variety of conventional loans, starting at 5 percent down with PMI.

I would look at the interest rate and fees with the BBVA Compass loan.  BBVA is a very fee-oriented bank, so this may be a gimmicky loan.  If it's a good deal, it would be worth pursuing.

Rocket Mortgage is part of Quicken Loans.  You can do better on rate and fees.  Does your agent work with any mortgage brokers?  A good mortgage broker will shop your loan to a number of lenders for rate and terms.  They deal with the wholesale side of the lender and add their costs.  Often they are significantly cheaper than dealing directly with the retail lender.

lexde

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Re: First-time home shopper, looking at duplexes
« Reply #2 on: July 01, 2018, 08:18:39 PM »
A good agent requires you to be pre-qualified because they don't want to waste time with buyers that can't buy.  As commissioned sales people, they don't get paid unless the sale closes.

There is a variety of conventional loans, starting at 5 percent down with PMI.

I would look at the interest rate and fees with the BBVA Compass loan.  BBVA is a very fee-oriented bank, so this may be a gimmicky loan.  If it's a good deal, it would be worth pursuing.

Rocket Mortgage is part of Quicken Loans.  You can do better on rate and fees.  Does your agent work with any mortgage brokers?  A good mortgage broker will shop your loan to a number of lenders for rate and terms.  They deal with the wholesale side of the lender and add their costs.  Often they are significantly cheaper than dealing directly with the retail lender.

Thanks for this. I haven't worked with an agent that requires pre-qualification before, but I haven't done much shopping (it's usually with other people). I'll look into the BBVA loan more, and also get in touch with my Realtor to see if she has any brokers to recommend. I appreciate this feedback and advice. Trying to avoid analysis paralysis with this and your input was super helpful. :-)

Another Reader

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Re: First-time home shopper, looking at duplexes
« Reply #3 on: July 01, 2018, 08:25:08 PM »
Decades of practice...

Some brokers are very good, others not so much.  A good agent will have a good broker - low pricing for the client, vets the client properly at the start, and effective at communicating and negotiating with underwriters - on speed dial.

Daley

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Re: First-time home shopper, looking at duplexes
« Reply #4 on: July 01, 2018, 08:27:27 PM »
Multi-unit properties can sometimes have HOA's attached to them... worse, they'll be grandfathered in and inactive with a wholly uninsured outer building and common grounds. Pay attention to property description as well, as that might give it away. Not as big a deal if you're buying all the units, but if you're buying only one of them, it can be an issue.

When we were house hunting a few years back, we looked at a unit in a triplex, actually made the offer and the deal fell through for this very reason because we couldn't properly insure our part of the building, so the bank said no.

As for mortgage pre-approval, personally, I preferred to get the paperwork lined up before we even started shopping. When we found the right place, it let us close in under 20 days, in December. You know your budget in advance, the RE agent knows you're serious, and sellers take you more seriously as well in high cash markets when you don't have to screw around with a 45-90 day escrow.
« Last Edit: July 01, 2018, 08:30:59 PM by Daley »

frugaliknowit

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Re: First-time home shopper, looking at duplexes
« Reply #5 on: July 02, 2018, 04:27:35 AM »
Watch out for FHA.  Easy to get, but the loans are riddled with fees which "insure" your loan.  It's not always easy to get out of, especially if the market is not favorable after you buy.

tralfamadorian

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Re: First-time home shopper, looking at duplexes
« Reply #6 on: July 02, 2018, 05:53:18 AM »
There are quite a few programs out there for first time home buyers for down payment assistance and/or low down payments without PMI. They can be at the federal, state or local level. Take the time to make sure you explore all that are available to you since you only have access to them once!

For lenders, I would recommend staying away from the big guys. Their customer service is horrible. If you do all your rate shopping within one couple day period, it will count as only one credit pull. Either local banks/credit unions, AIMloan or PenFed are good places to start. Both AIMloan and PenFed give real time rate quotes online so you donít even have to worry about a credit pull with either of them. Personally, Iíve used AIMloan for my rental properties and have been pleased.

Some people have great experiences with brokers. I never found the middleman to be useful. YMMV

lexde

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Re: First-time home shopper, looking at duplexes
« Reply #7 on: July 02, 2018, 08:23:14 PM »
@Another Reader - That makes sense. My Realtor has people she swears by, but stated she doesn't receive any commission from them. Hopefully they work out, but I may also try shopping around on my own as well.

@Daley - Luckily most of the units I've looked at are in HOA-free areas. I have sworn that I will NEVER live somewhere with a HOA. :-) The housing market is kind of slow in my area right now so I may wait until it picks up before I get financing set up because I really only found one house I'd be willing to move into in the last several months of searching, and it ended up being a dud. I expect the market will turn eventually.

@frugaliknowit - Thanks for the heads up. I'm leaning toward conventional, but maybe I can find something that works better. I don't want to get stuck with a ton of bogus fees.

@tralfamadorian - Thanks for this. Since the home I was really looking at ended up being a dud today, I will do more research into the available programs for me and get to be a bit more knowledgeable before I jump in again. I'll check out AIMloan and PenFed too.

Daley

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Re: First-time home shopper, looking at duplexes
« Reply #8 on: July 03, 2018, 08:14:24 AM »
@Daley - Luckily most of the units I've looked at are in HOA-free areas. I have sworn that I will NEVER live somewhere with a HOA. :-) The housing market is kind of slow in my area right now so I may wait until it picks up before I get financing set up because I really only found one house I'd be willing to move into in the last several months of searching, and it ended up being a dud. I expect the market will turn eventually.

Trust me, I dislike traditional suburban HOAs as well. Been there, done that, got the t-shirt and emotional scars to prove it and won't go back. However, HOAs/Co-Ops with multi-unit housing for purchase is a whole other beast, and isn't so much about collecting fees to play angry front lawn dictator so much as pay for insurance and property maintenance on the outer building. Many duplexes/triplexes only describe ownership of the property in question as starting and stopping at the inner walls of the dwelling (even if they potentially "give" you a yard to maintain), and I'll use a simple graphic to show why that I'm sure you'll appreciate from a legal perspective.

This stupid little ASCII doodle is a triplex, and the asterisk indicates a hole in the roof above unit 2. There is only water damage inside units 1 and 3 due to roof pitch, however.

Code: [Select]
.--*--.
/     \
|1|2|3|

Unless the outer building is owned and paid for as commons by all three units with enough insurance and liquid assets to get the hole fixed, who pays for repairs to stop the damage?

This is where we were thankful that we actually had gone FHA with our home loan. The unit we were looking at didn't advertise an HOA, and no dues were being collected or in the coffers. The HOA had lapsed for over five years, and there was literally no insurance on the commons. Thankfully, FHA put the brakes on it. At the time, we didn't know any better, but once the reality was explained to us, it made perfect sense. Worse, one of the finance people in the seller's RE office suggested going through them for the loan "given our troubles", and said, "don't worry, we can get the loan pushed through, our lenders don't care as we were able to secure loans for the others living there!"

I recoiled at that idea, horrified. Nightmare scenarios going through my head with roof damage, fires, etc., insurance claim nightmares, and zero active HOA for the property with no dues collected for years, and nothing but other owners who hadn't lived there long enough to know an HOA was supposed to be in place and likely would have balked at suddenly having an extra $250/month tacked onto their monthly costs to get the commons properly covered... and yes, the roof was getting old and showed some hail damage. (We liked the place so much at the time, we considered what it would take to re-establish the HOA and what the ongoing costs would be, but the cost placed the total higher than our budget, and I really didn't want to become the hostile neighbor that forced the people who he shared a wall with to suddenly have a $250+ added expense tacked onto their monthly costs.) It was also with that encounter that I discovered that some home lenders don't actually give a toss about their own borrower's best interests and financial security. It really is buyer beware.

It was with that almost mistake that I learned to appreciate both FHA loans and HOAs under certain conditions. We were naÔve going into that, and FHA saved our bacon. I also realized that unless I owned the entire building, I'd actually feel more comfortable buying any sort of multi-unit housing with some sort of HOA in place to act as mediator and commons keeper.
« Last Edit: July 03, 2018, 08:16:30 AM by Daley »

Cwadda

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Re: First-time home shopper, looking at duplexes
« Reply #9 on: July 03, 2018, 08:28:43 AM »
Hi Lexde,

I bought a 4 unit apartment building 1 year ago using an FHA 3.5% down loan. I found it off market and the sellers were willing to work with me despite taking a long time to close. FHA loans can have a lot of red tape, so make sure you get a lender who knows what they're doing. I do not recommend using Quicken/Rocket Mortgages. Try to find a referral for a lender who is more local, understands the local market well, and has good customer service. I used an out of state lender for my purchase and would never do it again.

Also, make sure your realtor understands real estate investing. A surprising number of realtors do not. The best properties are ones that are cash flow positive (they give you an ROI, just like the stock market would do). If you can swing a 3 or 4 unit building, I'd recommend that over 2 units (economies of scale).

Here is the cashflow calculator I use. This will calculate cashflow (how much you are + or - every month) and ROI (the return on the total cash you have invested). Just plug and chug!
« Last Edit: July 04, 2018, 10:03:53 AM by Cwadda »

tralfamadorian

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Re: First-time home shopper, looking at duplexes
« Reply #10 on: July 03, 2018, 11:36:24 AM »
@Cwadda I think you left your real address in there...

robartsd

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Re: First-time home shopper, looking at duplexes
« Reply #11 on: July 03, 2018, 12:01:06 PM »
I don't think I'd ever want to own a unit in a multi-unit dwelling - though a condo in a large development is quite different than one unit in a duplex or triplex. I hadn't even realized that such arrangements existed until I was shopping for my first home a few years ago. Based on the subject line I had assumed the OP is looking to buy a complete duplex to live in one side and rent out the other.

lexde

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Re: First-time home shopper, looking at duplexes
« Reply #12 on: July 04, 2018, 07:00:09 AM »
@Daley — that makes sense! But I think I was maybe unclear in my original post. I’m looking for a full building with 2-3 units so I can live in one and rent out the others; so an HOA would be a nightmare as the full maintenance responsibility would fall on me anyway as the owner of the building. I could see a condo/HOA being useful for individual unit owners though as t would ensure that the property they purchased would be maintained

lexde

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Re: First-time home shopper, looking at duplexes
« Reply #13 on: July 04, 2018, 07:02:30 AM »
Hi Lexde,

I bought a 4 unit apartment building 1 year ago using an FHA 3.5% down loan. I found it off market and the sellers were willing to work with me despite taking a long time to close. FHA loans can have a lot of red tape, so make sure you get a lender who knows what they're doing. I do not recommend using Quicken/Rocket Mortgages. Try to find a referral for a lender who is more local, understands the local market well, and has good customer service. I used an out of state lender for my purchase and would never do it again.

Also, make sure your realtor understands real estate investing. A surprising number of realtors do not. The best properties are ones that are cash flow positive (they give you an ROI, just like the stock market would do). If you can swing a 3 or 4 unit building, I'd recommend that over 2 units (economies of scale).

Here is the cashflow calculator I use. This will calculate cashflow (how much you are + or - every month) and ROI (the return on the total cash you have invested). Just plug and chug!
That’s awesome. I am looking at a 3-unit right now (I think that’s probably all I could handle at this point, although, how much day to day work has yours been?) and there’s no way I could come up with 15-20% for that so the 3.5% with a FHA would open a lot of doors for me. Thanks for the calculator!

lexde

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Re: First-time home shopper, looking at duplexes
« Reply #14 on: July 04, 2018, 07:05:04 AM »
I don't think I'd ever want to own a unit in a multi-unit dwelling - though a condo in a large development is quite different than one unit in a duplex or triplex. I hadn't even realized that such arrangements existed until I was shopping for my first home a few years ago. Based on the subject line I had assumed the OP is looking to buy a complete duplex to live in one side and rent out the other.
I am looking at a full building, yes. I would never want to own only half/ a third of a multi family (with the exception of a condo but only maybe).

This would be to have a lower living expense for now with at least one other income producing unit to offset my living expenses, and later to move out and have a passive-ish income.

Daley

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Re: First-time home shopper, looking at duplexes
« Reply #15 on: July 04, 2018, 09:13:42 AM »
@Daley ó that makes sense! But I think I was maybe unclear in my original post. Iím looking for a full building with 2-3 units so I can live in one and rent out the others; so an HOA would be a nightmare as the full maintenance responsibility would fall on me anyway as the owner of the building. I could see a condo/HOA being useful for individual unit owners though as t would ensure that the property they purchased would be maintained

Excellent. I just figured I'd mention it as I was unclear if you were talking single or multi unit purchase yourself (though, I could see how having it there might be useful down the road if you ever wanted to split the unit up - even if you own everything), and given my wife and I never really thought about it ourselves and didn't know going in... combine that with past IT support experience where I'm trained to ask the simplest questions, I never assume anything as common knowledge. At times, especially as I age, the more specialized I become at my profession, the more I sometimes realize how easy the painfully obvious outside my direct sphere of knowledge can get missed by me. YMMV.

I also just realized how much living in the state that I am colors my experiences. It was pretty difficult finding all parts of a multi-unit available in this state, and I sometimes forget that they're easier found elsewhere.

Cwadda

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Re: First-time home shopper, looking at duplexes
« Reply #16 on: July 04, 2018, 10:03:34 AM »
@Cwadda I think you left your real address in there...

Hey, thanks. I'll change it. It's not my real address but it's a property in my area (CT) I was doing calculations on.

Cwadda

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Re: First-time home shopper, looking at duplexes
« Reply #17 on: July 04, 2018, 10:06:30 AM »
Updated calc attached.