BiggerPockets

Hi everyone. I am new to this site and new to real estate investing. I am currently reading books and trying to learn all I can in a short period of time. Reason being my wife will be laid off in about 4 months and we will lose our current house if I don't do something. We have good income, great credit and 10-40k to invest depending on how long I have to liquidate. We were pre-approved for 225k loan for a home to move into with a plan of keeping the current house as a rental. Current house has a morgage of 295k and is worth 220k. I might buy another house to live in (cheaper house) and attempt to rent out this one. Very tuff to rent in this market though. What I am asking you guys for is advise, reading material, or any ideas I might not have thought of. I am open to anything and feel I have nothing to lose. Negative equity in current home and upcoming loss of more that 50% of our income. I will check back and thank you in advance for your help. Darren

First, DO NOT p*ss away even one dime on any sort of real estate investing class, home study course, boot camp or mentoring program. If you and your wife want to start a business, start one that leverages your current knowledge and skills. Real estate is a business like many others, and has its own set of knowledge and skills. You can learn a lot from reading here, reading books, and from all the various gurus who are out there selling education. But it takes time and effort to learn a new business from scratch.

Rental real estate does not produce much income. Certainly, anyone who tells you "this cash flows. Rent is $2000 and PITI is $1500, so you'll have $500 a month in cash flow" is lying. You will have vacancies, maintenance, advertising, legal fees, liability insurance, and numerous other expenses beyond taxes and insurance. Rentals are great for building long term wealth. They are bad for short term income.

Other forms of real estate businesses, like wholesaling, fix and flips, developing, and the like are jobs. They are risky jobs because you only get paid when you make a deal. Some folks are very successful at these. But easier to get started if you don't have to worry about putting food on the table.

You need to fix your income problem, first. You say that you were approved for a loan on a second property. Current lending guidelines won't allow any of the potential rental income on your existing property to be considered when approving this second loan. That's because a common scam is to buy a new, cheaper house, claiming the old one is going to become a rental, then let the old one go into foreclosure. Banks have gotten wise, so, the lender would have looked at your combined income and the new and existing payments, and only OK'ed it if you could handle both with no income. Now, if the two of you could handle both loans, it seems like you should be pretty close to being able to handle the existing house on just one of your incomes.

Can you wife find another job in a similar field, even if it doesn't pay as much? Can you get another job?

Is something happening with your current loan, like a big reset in an ARM rate? Even so, seems like the new lender would have been aware of that.

If you have $40K available, that sounds like a pretty good emergency fund. If you're close to being break even, can you tap into that money to stay afloat while your wife looks for a new job?

Now, some folks do take an opportunity like this to make a major leap. And leaping into real estate works for some folks. But, its tough and its a lot of work, and the paydays are sporadic and depend on your skills and abilities. There are also a lot of people out there ready and willing to separate you from your money. Folks who can spin a very good story and make you think you're going to rich while the get you to max out your credit cards. Don't become a victim.

Reason being my wife will be laid off in about 4 months and we will lose our current house if I don't do something.

If you can't afford your current house once your wife gets laid off, you certainly can't afford this house AND a rental. If you do everything right on a typical rental, you might earn $100 per month. With a house in the $200K value range, they will almost always lose money each and every month!!!

You sound like the poster child for the "Making Home Affordable" Program that the government has instituted. I would suggest looking at their webpage http://www.financialstability.gov/ and checking out the "Summary of Guidelines" to see if you qualify to have your home refinanced. They might even write off a bunch of your principal.

The very worst time to start a rental property business is when you NEED the money! I'd just say NO to that and spend your time on (your wife) finding another job. Once your stable again, that's the time to think about starting a rental business.

Good Luck,

Mike

Boy did I come to the right place. I feel like I've done everything right up to this point and I am so upset that this is happening. Probably a common story. To answer some of your questions.. Jim- The only thing that bothers me about the short sell is that it will ruin my credit. If thats the case why not buy another home in desperation and let this one go. Very informative about the 225k rental. That is what I was thinking until now.
Jon- I already ordered some book for $10 and now have to cancel the $75 they want a month for this and that. Thanks for the heads up. We did qualify for both morgages with 115k income currenty. My wife is a teacher and every school is pink slipping so there in no other teaching jobs. She will however be looking everywhere for any type of job she can find. Our current loan is fixed at 5.5% no ARM. The thought of cashing out roths and 401ks to stay afloat doesn't set very easy for me. I have a few old cars I can sell that will get me by for a while. Hate to see them go though.
Elezibeth-rental signs are everywhere including for sale..REOs, foreclosures seems every 12 houses have a dead lawn in the neighborhood, so your right not a good time to put another house up for rent. Would probably rent for $1500 and morgage is $2100. I will look into loan mod.
Mikes right Affordable homes for everyone.
I was orriginally thinking of using the loan A was approved for to flip a house since I have many contacts for what ever I can't fix in a house, but it is risky like mentioned above. Just desperation I guess. Thank you for your knowledge and help. I would love to hear any other ideas you might have, like buying a lotto ticket. Thanks again, Darren

Wow, it looks like I would qualify, but I think its up to the banks to decide if they want to do the mod or not. I have already told my bank about my situation and they said that theres nothing they can do for me. We'll see when I comes crunch time I guess. I think I will try contacting them in writing also. Oh, and I love Dave Ramsey. I used to listen to him on the am radio show and have read his book. Just wish the wife would read it, but thats another topic.
Thanks, Darren