The House Hunt Begins!

After return­ing from the Chau­tauqua where I talked at length to Paula, I declared I was going to buy a mul­ti-fam­i­ly prop­er­ty to rent out and kick­start my pas­sive income stream.

That time is now!

I’ve spent the last sev­er­al months read­ing up on what seems like every blog post ever writ­ten about rent­ing out mul­ti-fam­i­ly prop­er­ties, how to look for good deals, what to look for in a prop­er­ty man­ag­er and hor­ror sto­ries galore.  I also took the time to get acquaint­ed with my local mar­ket. What was for sale, where they were for sale, what kind of prop­er­ties this area has, and tak­ing note of their gen­er­al con­di­tion.

Through out this process, I’ve been tak­ing very detailed notes so I can share them with you and hope­ful­ly make your process eas­i­er than mine. If not eas­i­er, at least slight­ly less scary. I’d say I’m pet­ri­fied, but that’s a bit too strong of a word. Ter­ri­fied.… maybe. Def­i­nite­ly appre­hen­sive. There’s so many ways this can go wrong, BUT there’s also tons of sce­nar­ios where every­thing turns out great and I make a boat­load of mon­ey. A for­mer cowork­er of mine and I grabbed a drink last week and were chat­ting about it. He has sim­i­lar aspi­ra­tions as I do, and went out of his way to assure me this was a good path. He fell into the land­lord­ing path, where­as I’m delib­er­at­ing seek­ing it out and doing it based on the math and fan­cy for­mu­las.

Fol­low the steps below and you’ll have a sol­id foun­da­tion on which to build your house hunt!

Step 1: Prepare

Ask your­self the fol­low­ing ques­tions: What kind of mort­gage are you going to get (FHA, VA, tra­di­tion­al, etc)? Do you have enough for a 20% down pay­ment to avoid expen­sive PMI? What kind of prop­er­ties are you look­ing at? Are there any in your area? What area of town do you want to buy in? Who do you want to rent to (stu­dents, young pro­fes­sion­als, fam­i­lies)? One arti­cle I found stat­ed you should have a short state­ment that encom­pass­es your bud­getary expec­ta­tions. Mine is this:

I will pur­chase one prop­er­ty with a pur­chase price of $155,000-$225,ooo once every 24 months.
I will finance the prop­er­ty using a VA Loan with a 5% down-pay­ment. Depend­ing on total pur­chase price,
I will bud­get for up to 2% in clos­ing costs and no more than 3% in repairs max­i­mum. The max­i­mum
all-in cost includ­ing down pay­ment, clos­ing costs, and repairs should be no more than $15,000.

I also plan to rent to fam­i­lies or young pro­fes­sion­als in a build­ing with up to 4 units. I will not be rent­ing to col­lege stu­dents. I have to live in one side for at least 12 months fol­low­ing clos­ing, so the prop­er­ty needs to have one emp­ty unit or a ten­ant on a month to month lease.

Step 2: Find a Lender

Thanks to my time spent serv­ing in the Air Force, I have access to a VA Loan. No min­i­mum down-pay­ment, and no PMI! There is a small fund­ing fee attached, but it’s neg­li­gi­ble in the long run so I’m not wor­ried about it. The trick is find­ing a lender that has expe­ri­ence with the kind of loan you want to get. Each type of loan has its own set of intri­ca­cies, so it’s pru­dent for you to get one that knows how to best uti­lize your pre­ferred loan. Thank­ful­ly, a cowork­er high­ly rec­om­mend­ed the lender he got his VA loan from so that was one less has­sle off my plate.

Once you find a lender, you’ll need to gath­er paper­work for every time you’ve sneezed in the last year. It’s not that bad, but you do have to come up with cred­it card state­ments, bank­ing state­ments, W-2’s, tax returns, and state­ments for any invest­ments you’ve got. Some of those can take a lot of effort to track down (past tax returns, I’m look­ing at you!), so make sure to start before you find your dream house. After you get all of your paper­work in, your lender will run your cred­it and give you a pre-qual­i­fi­ca­tion let­ter. This is so the sell­ers know you can actu­al­ly afford to buy the prop­er­ty like you say you can.

The cred­it check was a great test of all my var­i­ous cred­it track­ers. Each one let me know with­in 24 hours (one with­in 20 min­utes!) that some­one had done a hard pull of my cred­it. It was actu­al­ly kind of reas­sur­ing to know that I’d be informed imme­di­ate­ly should some­one try to do some­thing shady with my infor­ma­tion. My lender also told me my cred­it score from the ser­vice he used and it was way high­er than say, what Mint or Cred­it Kar­ma “guessti­mates”. (suck it Mint!) It’s nice to have that handy should I need financ­ing for any­thing else in the future. For some­one who doesn’t have much of a cred­it his­to­ry, I’m actu­al­ly a bit sur­prised it’s that high, but I’ve worked hard to get and main­tain a clean record for just this pur­pose.

Step 3: Find a Realtor

Sim­i­lar to find­ing a lender, you want to find a real­tor who under­stands what you’re try­ing to do. You waste pre­cious time and ener­gy if you have to explain mul­ti­ple times what you’re look­ing for, and I wouldn’t want that to cost you a good deal. My real­tor has expe­ri­ence with both VA loans and investors, so he’s more or less ide­al. He also hap­pens to be an acquain­tance, so we have a shared expe­ri­ence to build our pro­fes­sion­al rela­tion­ship on. I explained once what I was look­ing for and he adjust­ed the search area and para­me­ters accord­ing­ly.

From lit­er­al­ly almost everyone’s reac­tions, it’s high­ly unusu­al for a sin­gle 25-year-old female to want to buy a mul­ti-fam­i­ly invest­ment prop­er­ty. Some peo­ple are impressed when I tell them, and oth­ers react with a bit more skep­ti­cism. It’s incred­i­bly use­ful to have my real­tor there to defend me against the raised eye­brows and back-hand­ed com­pli­ments. He has the utmost con­fi­dence in my plans and my abil­i­ties, which comes in handy when peo­ple grill me on any­thing and every­thing relat­ed to land­lord­ing and house search­ing. For­tu­nate­ly, I’ve passed all the tests with fly­ing col­ors so far.

Step 4: Find a Property

Find a prop­er­ty to buy: it sounds so sim­ple when it’s put like that. How hard can it be, right?

It can get just the tinieeeeeeeeeeeeest bit com­pli­cat­ed. Just a wee bit. Hah, who am I kid­ding? Find­ing a good prop­er­ty takes ded­i­ca­tion, patience and a bit of luck. I’m for­tu­nate to be liv­ing in an area where the mar­ket isn’t com­plete­ly nuts like the Bay Area, Seat­tle, NY, Den­ver or Austin. I’ve friends look­ing to buy in some of those mar­kets and their sto­ries make me shud­der. I’d nev­er be able to get a prop­er­ty there with a small down-pay­ment on a VA loan. If you want a prop­er­ty there, you have to be the first in the door, with cash, will­ing to for­go any inspec­tions and fac­ing sig­nif­i­cant repairs. No thanks.

Any­ways.….….….. while I don’t have to deal with those, I have some unique chal­lenges in mine. To start with, there aren’t a ton of mul­ti-fam­i­ly prop­er­ties in the area. Most are on the sketchy side of town, or clus­tered around the col­leges, nei­ther of which fit my tar­get demo­graph­ics. At one point, there were 42 total prop­er­ties on the mar­ket, and only 8 of those fit the bare min­i­mum of my require­ments. I had to wait for new prop­er­ties to appear on the mar­ket, which didn’t come around very often since most peo­ple appar­ent­ly have some­thing against mov­ing hous­es dur­ing bliz­zards. Weird.

The prop­er­ties that did pop up on the mar­ket were usu­al­ly not that great. Most had issues with their foun­da­tions and/or water in the base­ment, and oth­ers had ten­ants in all the units. I’m look­ing for a prop­er­ty that’s more or less turnkey with a unit open so I can move in as per the con­di­tions of the VA loan.

Step 5: Make an Offer

You’ve done all the hard work and found a place you can live with (haha get it?). Maybe some tears were shed, some wine was drunk, lots of gas wast­ed going all over town but none of that mat­ters any­more. You’ve found The One. (side­note: find­ing a prop­er­ty to buy is a lot like dat­ing. What flaws are you will­ing to accept?)

Did someone say paperwork?
Did some­one say paper­work?

So your real­tor gets a stack of papers togeth­er that looks like it belongs in Office Space. Then, you get to go over all of it in excru­ci­at­ing detail. I’m fuss­ing a bit, but real­ly it’s incred­i­bly impor­tant to make sure you under­stand every sin­gle line.



Sor­ry for the freak out. That’ll prob­a­bly also go through your head as you look over all this paper­work. Stuff such as: earnest mon­ey, pur­chase price, clos­ing costs and who’s going to pay for them, what the sell­er is will­ing to leave behind and def­i­nite­ly wants to take with them, how long the inspec­tion peri­od is and what day you’re going to close.

After you make an offer, the sell­er can either counter or pass. If they counter, you can counter back and so on and so forth until one of you caves and accepts the other’s offer.

Step 6: Finish Everything Else

Then you maybe get to do some or all of the fol­low­ing: get the prop­er­ty inspect­ed (to include mold, radon and pests), get a rental cer­ti­fi­ca­tion (if it doesn’t have one already), get the sell­er and their stuff out, get the prop­er­ty to the con­di­tion as ear­li­er agreed upon, get all your paper­work for the loan processed, inter­view prop­er­ty man­age­ment com­pa­nies for the best fit and hire one, and then final­ly the keys are in your hand and you’re the own­er of THE WHOLE WORLD.….…. errrr I mean your prop­er­ty!

Help­ful ref­er­ences:
Every­thing from Paula at Afford Any­thing
Fru­gal Vagabond’s writ­ings on Real Estate invest­ing
Big­ger Pock­ets 

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3 thoughts on “The House Hunt Begins!

  1. Con­grat­u­la­tions on your future prop­er­ty! I hope you enjoy it. My wife and I just bought our first rental prop­er­ty last year at age 33. So far, so good. I would con­sid­er adding anoth­er one in anoth­er year or two.

    I would add one oth­er financ­ing source that I wish I had tak­en more advan­tage of. Since we own our own house and the rental prop­er­ty is just an invest­ment, we used a home equi­ty loan for about 20% of the pur­chase price. The home equi­ty loan is at 2.75%, but the rest is cov­ered by a $100,000 rental mort­gage at 4.25%. We actu­al­ly could’ve tak­en out a much larg­er home equi­ty loan. I wish I had, because the rate is so much bet­ter.

    Also, don’t neglect the “sketchy side” of town. I live in a “sketchy” town, and our rental is in anoth­er “sketchy” town. They only have that rep­u­ta­tion, but are actu­al­ly fine places to live. It’s a bit hard­er find­ing prospec­tive ten­ants if you’re not in the “hot” neigh­bor­hood, but on the oth­er side, the pur­chase prices are much low­er, and you won’t need to demand such a high rent to meet your expens­es.

  2. This is excel­lent. Many of the FI blogs start with the per­son already fair­ly far along in the jour­ney. They already own their prop­er­ty or they are already retired. It will be fun to watch some­one blog from the begin­ning of the jour­ney. Keep it up please!

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