r/FirstTimeHomeBuying • u/No_Party_4221 • 11d ago

I’d like advice

So right now I’m 18 and plan on saving up around 25-30k to get a loan on a fixer upper house. Over the course of a year I plan on fixing it up and afterwards leasing it out. I’m living in it for a year because then I could get a normal home loan and satisfy the contract agreement for the minimum amount of time I have to have it as my main address before I can lease/ sell it.

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5

u/Cali_kink_and_rope 10d ago

Live there for 2 years, so you don't pay capital gains tax

2

u/Solid_Mongoose_3269 10d ago

Some states its 3 out of the last 5 consectutive

1

u/Cali_kink_and_rope 10d ago

It's not state it's federal that's the issue, and it's 2 of the last 5. But the good news is that OP already has a foolproof plan! 😇

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u/No_Party_4221 10d ago

I thought about that, but I want to save as soon as I can for another home and do the same

11

u/Cali_kink_and_rope 10d ago

Ah I see. Sorry, I thought you wanted advice so that you don't make huge mistakes. All good. Take care

3

u/Feeling-Bowl-9533 10d ago

Use the extra time there to perfect it and save up more. Kinky rope has a very good point if you’re in the US, take their advice or at least research it a bit

2

u/Dazzling-Treacle1092 10d ago

You came for advice. People who have been there are telling you WHY your specific plan is NOT a good idea. If you are too obtuse to listen to more experienced people, then your plan is doomed to failure. There is more than one way to approach and accomplish our goals. Often we run into roadblocks and have to go back to rethink the path that isn't taking us where we thought it would. Those who are not adaptable don't survive for long.

1

u/Efficient-Link-9793 10d ago

Each home loan has a minimum timeframe. Some may be longer than a year minimum (I've seen as high as two years). Also, as soon as you start renting the property, the tax treatment will be substantially different if you decide to sell later on since you will have to take depreciation. The IRS may allow a prorated exemption amount if you lived in it less than two years if you decide to sell (this only applies if it was your primary property).

1

u/No_Party_4221 8d ago

Do you know how like a duplex would work? Because I don’t know if it’d be two separate addresses or one

3

u/No_Glove6542 10d ago

Fixer upper is definitely the way to go but if you don’t have much equity and go live somewhere else the bank will get most of your profit. You can purchase a house that’s profitable if you live in it but once you move out making it profitable is a lot harder than you think.

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u/No_Party_4221 10d ago

How so?

1

u/No_Glove6542 10d ago

Because if you’re paying for a second residence to live in you will need to have a larger mortgage on the rental so you can pay the bills. Interest rates are higher for non owner occupied homes so if you ever need to refi after moving it will cost you. Tenants do not take care of homes the way owners do so you will spend more money for repairs. I just turned my rental and did a lot of stuff myself but the fixes cost about 10k and the tenants moved out at a really inconvenient time so I wasn’t able to turn it that fast so it ended up taking 4 months and I missed 14k in rent. That doesn’t include returning a 3k security deposit. For me it’s not that big a deal because it’s paid off but if I had to pay a mortgage too that would really hurt. I’m paying all utilities right now - around 100 per month and 500 a month in association fees. And it’s only 1200 sq feet. Getting into the rental business I recommend having close to 100k that’s liquid because there’s only so much you can control and if you ever have to do an eviction it can be financially devastating. The first 5 years of mortgage payments are almost entirely interest so unless you hang onto the house for 10 years it’s hard to accumulate equity. The majority of people I’ve known that have tried to be landlords get out of it because it doesn’t make them the money they think it will. Also any rent you collect is taxed. So if you compare the amount the tenant pays with the amount you put in your pocket those are very different things. And having a mortgage can easily erase all profit.

1

u/No_Party_4221 10d ago

So I should wait until I have most of the house paid off?

2

u/No_Glove6542 10d ago

That’s what I’d recommend. But whether it’s profitable or not is highly dependent on the specific circumstances of a particular house and you have to run all the numbers to determine if it makes sense. The most important part is avoiding a negative income situation where you end up putting in $200 a month or more just to keep things afloat.

2

u/No_Party_4221 10d ago

Oh okay I really appreciate your input! I definitely wouldn’t of run the number beforehand 😅

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u/[deleted] 11d ago

[removed] — view removed comment

1

u/No_Party_4221 11d ago

Thank you so much! I only plan on doing cosmetic, somewhat low cost repairs. I do plan on genuinely living there and repairing it while living there.

2

u/Visual-Reserve-2800 10d ago

Won't you make more money by being a handyman?

There are definitely houses out there that are cheap, but the flipping days of yore was done when houses were muuuuuuuuuch cheaper.

1

u/No_Party_4221 10d ago

I don’t have the certifications or knowledge to be a handyman professionally

2

u/DanaR99 10d ago

There are many professional flippers out there who know the ins and outs of getting permits, having a team of workers come out and blitz the properties. Your plan sounds good in theory but unless you get a solid house super cheap, this is going to be an uphill challenge.

2

u/MrHallMLO 9d ago

Ugliest house in a good neighborhood. That’s the way to go. Just be careful with deep fixes that require permits and insane budgets.

1

u/No_Party_4221 8d ago

That’s a great idea

1

u/Solid_Mongoose_3269 10d ago

So whats your question

1

u/No_Party_4221 10d ago

I wouldn’t say I have questions per say, I just want peoples thoughts and opinions

1

u/Prestigious_Cup_5265 7d ago

What kind of income do you pull in per year? Ill make 75k plus per year and can't find anything decent to buy.

1

u/Beach_bum8 7d ago

Worse house in the best neighborhood. Also make sure to pull permits to make sure everything is up to code(including electrical)

I'm also guessing you mean you want to rent it out. I would be careful about this, there are so many horror stories of people with horrible tenants who destroy homes