Starting out. What should I do?

Asked by David Brooke, Windsor Locks, CT Tue Nov 11, 2008

I am interested in purchasing my first home. Having a father in the real estate industry (owning an appraisal business), and working construction myself, I have a great interest in buying a multifamily home. I am looking to find a property that will require handywork and repairs- and in turn eventually appreciating the value of the property. Down the road, plans are to rent out the other unit(s), while living in one myself, until I can flip the property or purchase a new home and repeat the process.

I have looked into a 203(k) loan, and also a Streamline-K. Being a first time home buyer I have looked at FHA loans and plans. Also HUD homes have been an interest.

Areas around and in Indianapolis are my focus.

I'm basically looking for some solid advice on what steps in the renovation process and loan application etc. I could be advised to take. What specific areas to a property are needed to be renovated to appreciate it. Basically, what should I do first? I have many questions.

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Eric Karrfalt, Agent, Noblesville, IN
Wed Nov 12, 2008
Great plan. Sounds similar to what I did starting out with my first home 17 years ago. I bought my first listing ever, rented half, lived in the other. I then moved on to other property, either flipping or keeping and eventually built some new construction. There is so much to cover in so little space. If your looking for an experiencd agent with speific knowledge of buying, renting, rehabbing, flipping, I'm your guy. I have done it through personal experience.
So here is a quick lesson.: Location is always key. I would key on areas with population growth and good economies, schools, etc.. This is where you will find stable markets with better prospects for appreciation. Hamilton County would just be one example.
Budget. budget, budget. Cost overruns and estimating were things I really focused on. If you have done construction, it's easy to see how a $1000 bathroom cleanup can overrun into the thousands. Watch your cash output.
I would focus on property that only needs cosmetics. Heavy remodeling is expensive and time consuming, especially if you plan on doing it yourself. Hire contractors when appropriate. Just because you can drywall, does not mean it is smart money to do it when a crew can knock it out in 2 days for $1000. Time is money and you need to remember every day you are working on a project, is every day you are not focusing on being a project manager.
Factor in all your time when considering a purchase. It does no good to buy a home put a lot of sweat equity into it and only break even on your sales price.
Financing. There may be better alternatives to FHA financing. It does limit you somewhat in that it takes time to get materials to the job, contractors to finish the work, then you submit your invoices for payment and get a check cut. You can't negotiate the best pricing that way. If a contractor has to wait to get paid, it will usually cost more. You are also limited in who can recieve the FHA draw checks for work. I don't believe they will cut them to homeowners anymore. They get cut to contractors, so this poses new issues. How do you reimburse yourself????
Duplexes vs. single family. My gut feeling says duplexes have not appreciated much over the last few years, at least not enough to make a big spread on their sale. I might suggest some of the newer 3-5 year homes that are repos right now. I can demonstrate with actual appraisals and sales I have done that they can be purchased $10-$20k below their appraised value. Cleaned up with paint and carpet gain more on the market value sales price. If I were starting out, this is where I would look. They are just a better deal right now. One last thought, whenever you look at a property, you need to also add in it's carrying cost and sales cost when determing if it is a good value to buy and flip. Sales comissions, cut into your bottom line. Not an issue if you plan to hold, but ultimately cut into your bottom line. Now I could go on into such things like 1031 exchanges rent to owns, contract sales, etc., but that's a graduate course.
Sounds like you have a great plan. It would be a pleasure to talk with you about your plans. Check out my profile and feel free to contact me. -Eric
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Eric Karrfalt, Agent, Noblesville, IN
Wed Apr 15, 2009
Hi David,
This looks like an old post but popped up as a new question today. Giive me a shout and give me an update of your plans. Lots of things have changed in the market since we last spoke. Contact info in my profille. -Eric
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Laura Musall, Agent, Fishers, IN
Wed Nov 12, 2008
I agree. Talking to a lender or mortgage broker first makes sense. A lender will be able to talk you through the best options for your goals. Next, I'd suggest talking with a real estate agent who can help you locate the properties that fit your budget and your needs. Right now there are a lot of good buys, but it's also important to locate a property in a neighborhood that will give you growth potential. I work with a colleague who specializes in "flipping" and investment properties. Let me know if you'd like to discuss further.

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Tom Vornholt, , 46181
Tue Nov 11, 2008
You have done a lot of excellent work so far. Your next step needs to be meeting with a mortgage agent and get a firm committment on what program and price range you can qualify for. Once you have that, then meet with a realtor and start detailing your search areas and property parameters and bgeing the search. As far as the specific areas of the property to renovate first, it will vary from property to property. You will need to start getting associated with contractors and getting generic estimates of their costs so you will be able have a strong idea of what a property will cost to renovate.
Another important factor is what will the home be worth after renovating. Your realtor or your dad (the appraiser) You don't want to spend the money to renovate and have your final market value be less than what you have spent.
Let me know if you have any other questions at
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Vernieke Ro…, , South Windsor, CT
Tue Nov 11, 2008
It seen like you already have an idea of what you are looking for, which is a great start. This next step is to find out what price range you can afford. You should contact a mortgage professional. Good luck
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