Getting down to brass tacks for purposes of making your first purchase or becoming a property owner: make the purchase as a homeowner. We want you to make your purchase as a homeowner because as a homeowner you get better access to financing, therefore, this the absolute easiest way to buy your first property.
You want a move-in ready property. It doesn’t have to be a new property but we want you to buy a property that’s move-in ready so that when you get that loan commitment, when you’ve made your down payment, when you close, all you do is move your things there. Stay away from those that cause you a lot of work.
Hi this is John welcome to today’s program. Today’s title is: The Absolute Easiest Way to Buy Your first property.
Now that may sound a little bit over the top. It may sound a little bit too easy but that’s the whole point. We want to focus on items that people can do themselves to purchase their first property without having to go through hurdles, hoops, barbed wire and everything else that people think is required of them to become a homeowner or a property owner.
At 21-years old I dropped out of college because I was making more money in real estate than I thought I could ever make by becoming an educated person which of course in the long run is not true. But at 21 I thought that was true. A few years later I’m 23 and I’m not making as much money in real estate and I come across an older man that’s looking at me and seeing potential. He asked me why I dropped out of school. I said because I’m making more money in real estate than I think I ever will by being in college. And he said, well how old are you now and I told him 23. He said, well, how old will you be in two years. And of course I said I’ll be 25. he looked at me sternly and he said you might as well be 25 with a college degree.
That didn’t settle very well with me at the time but I did take his advice to heart and I did go back to school. But I think the same rule of thumb applies to real estate ownership; if you don’t own any real estate now, two years from now will you own any real estate? And if the answer is no that’s fine. But if the answer is, yes, in two years I wish to own some real estate, then you probably need to start working on that now because working on it now will allow you to put that time in that’s necessary to meet a two-year goal.
In real estate things do not happen in a vacuum and they certainly don’t happen in a short period of time.
It’s a very time intensive business to get into the business of real estate and it’s a very time intensive business to stay and operate real estate and just as much to exit from a particular property. Time is not on your side when it comes to real estate. It’s really is a slow-moving asset class.
Real estate requires you to have a long glide path just to get into the business. If you’re thinking you want to be a homeowner or a real estate owner in one or two or three years you really need to start now preparing to make that occur because that’s the only way it will occur. If you wait three years to start it will be another year or two after that until you actually get into the business. Think about that as we go through today’s program.
I’m not trying to distinguish those that have purchased property before or if this is your first property. I’m just suggesting that the methods we’re going to go through here represent just an easy way to buy a property. I mean there’s all kinds of tricks and tabs and various methodologies for getting through the process of buying a property. No money down, low cash down payment, creative financing with lease option to buy- all of those require a high level of expertise and many of them require more financial accountability than people realize.
With this particular program, we’re discussing exclusively for my perspective, the absolute easiest way to buy your first property or to buy a property and have it in your name. And whether or not it turns into a rental or not at some point that is not relevant to the beginning of this process which is buying a home to live in or buying your first property that may eventually turn into a rental.
The easiest way to buy your first property is to buy it as a homeowner.
We want you to make your purchase as a homeowner. As a homeowner, you get better access to financing, therefore, this the absolute easiest way to buy your first property. And that would be to have your parents buy it for you. Now after the pregnant pause, we say of course that doesn’t happen very often, right? For the other 99.999 percent of us the likelihood that your parents are going to buy your first property for you- it’s not probable.
Another option is to crowd fund your down payment- another uncomfortable pause to say of course that doesn’t happen very often. It may, but the likelihood is not very high.
Getting down to brass tacks for purposes of making your first purchase or becoming a property owner: make the purchase as a homeowner. You and your family make the purchase as a homeowner. That gives you access to the best financing, the most normalized financing that’s in the marketplace which is 80 percent new first mortgage money which requires a 20 percent cash down.
If you have issues with garnering that down payment go to JohnWilhoit.com. There’s a free e-mail course called “10 Ways to Find Your Down Payment. Some of the methods we highly recommend and a few of the methods we suggest you stay away from. Get that free e-mail course to assist you in looking for ways to get you down.
First, make the purchase as a homeowner. Secondly, use regular (or straight) 80 percent new first mortgage money with a 20 percent cash down payment. Then move into the property yourself.
Don’t look to do this: garner home-ownership financing and flipping it into a rental. Just move in and stay a while. Your loan documents will likely say that you have to reside in the property for two years personally. So, meet the loan document requirements and move into the property.
Call it your own home with that two-year period. Make the purchase as a homeowner and then my suggestion is that you only purchase move-in ready condition because we’re trying to make this easy. We’re not asking you to look at fixing things that are broken, in need of repair.
You want a move-in ready property. It doesn’t have to be a new property but we want you to buy a property that’s move-in ready so that when you get that loan commitment, when you’ve made your down payment, when you close, all you do is move your things there. There are ample properties that meet that criteria.
Stay away from those that cause you a lot of work. My family is a good sample. I have a number of nieces and nephews that have tool belts- they can fix anything. Then there’s the rest of us that can’t hit a nail straight with a hammer. For making this purchase easy, only look at properties that are move-in ready.
Now the other part I want you to keep in mind, from a financial perspective, is to keep the purchase price at no more than two times your household income. People will often go higher than that because they can. The normal range is between one and a half and four times household income. But for purposes of keeping this purchase easy, we want you to stay under two times your household income for the purchase price.
Next, only buy in neighborhoods that you know, neighborhoods that you have experience with, neighborhoods that you know how they work, you know what happens there. You know who lives there already, in terms of the demographic profile of the neighborhoods. Don’t go out into the world and find a new place. Just focus on those places that you already have a high level of confidence in already. In that way, it makes it easier because you don’t have to figure out where things are.
Next, if you’re going to buy single family stay with a three-bedroom two bath or larger. Stay within that two times household income. That property will be easier to sell or rent when that time comes. If you’re buying a condo, try to purchase a property that’s at least one bedroom one and one half baths. Very often the one bedrooms will have just one bathroom. Try to stick with those that have that one and a half bath. It’s just that extra feature that allows the master bedroom to stay private because there is another half bath for use by guest.
Think about that when looking at a condo. Also, we want to look at properties that have low maintenance. We don’t want you to buy a small house on a big lot that requires hours of outside maintenance or hundreds of dollars to keep the outside of the property maintained. We want you to buy a property that’s a low maintenance place to assure its an easy first purchase.
When you put all these things together it may not necessarily seem like it’s any easier than buying any other property but those things that we just mentioned streamline the process. What I mean by that is it takes everything else out of play.
When you put all those items in the same basket you’re looking at a property that will be affordable and one that you can live in for an extended time. A home that will be the easiest in terms of processes in the marketplace where are you the buyer.
Please consider reading my book 12 Steps to Home-Ownership. I also have an online course. You can find the online course at JohnWilhoit.com. The book outlines these items in sequence and goes into far more detail than what we have here. For this episode, we’re trying to knock down even those processes further and make buying your first home or buying your first property the easiest that we possibly can.
What happens when we go through all these steps? What’s the next step after buying your first home? Well if you live there for two years or longer and have some appreciation then you have the option of potentially selling that property and buying another one. But if you want to stay for a while that’s all well and good. Most people stay in their home between five and seven years.
If you’ve had it for a while and you know what rents are, you’ll be able to determine if the rents that you can obtain for that property will pay the mortgage payment that is on the property. If that’s the case, then you have the option of going and doing the same thing again; buying another property and keeping the first one as a rental and then buying a duplex. That’s the segue with a duplex; getting into the property rental business along with becoming a homeowner.
With a duplex, you are becoming a homeowner and a property owner that has a rental. If it has been a short period of time you are not very likely to be in a position to refinance the first property and cash out. But if it’s been five years or longer there may be equity in that initial property where you can refinance that property and take cash out and use that cash to buy the second property.
This second property could be yours as a homeowner or it can be another rental property that you intend to live in for just a short time, two or three years, and then turn that one into a rental. If you want to know the next step in property ownership you can look at duplexes as your initial purchase or a duplex as your second purchase.
That way you’re buying a rental income property along with homeownership at the same time and you still have access to homeownership financing because you’re buying a property that’s non-commercial. By non-commercial it just means one to four units. Once you get to five units that would be considered a commercial property and it will require a larger down payment; 25 percent if not higher.
For purposes of making the absolute easiest purchase on your first property think about a single-family home or a condo. And then secondarily a duplex if that suits you. Once you buy a duplex you are now a homeowner and a landlord.
As you’ll hear throughout many of the programs, if you’re a small property owner, I highly recommend the first year of ownership that you hire professional property management because you need the folks around you that do this for a living. That first year as a rental owner is not the time for you to go through a learning curve. Why become a homeowner and concurrently becoming a property manager with all the things that requires?
Thanks for listening today. This has been John Wilhoit On Real Estate.
John Wilhoit is a real estate professional specializing in residential asset management and property management. John has an undergraduate Degree in Business and a Master’s Degree in Urban Studies. Learn more about John here.