buying rental property while renting

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buying rental property while renting

Sergio W.
NC · Member since 2009 · 4 posts · 3 votes

Hello everyone, I'm new here and I'm VERY anxious to begin my investing journey. I've been researching REI for over 2 years now and I'm ready to dive in. The problem is I don't really have much cash to play with. I'm currently leasing an apartment and I'm always looking at the cost of properties in my area and the prices are ridiculously low becasue of the housing market right now. I want to cash in on these wonderful opportunities while the prices are so low, but like I said I don't have much capital to work with.

My question I guess is is it unheard of for one to obtain an investment property mortgage for an investment/rental property while renting themselves? I know it may seem like an odd question, but I have looked all over this site and the web and I can't seem to find much info on this particular situation.

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Steve M.
Realtor · Gallatin, TN · Member since 2009 · 292 posts · 164 votes
16y

Hey Sergio,

Welcome to BP ... The best resource IMO for rookie and expert advice anywhere on the net when it comes to REI ....

I'm much like you ... Except, I do have capital to work with. My fiance and I are actually leasing the house we live in now, but I bought my first duplex just a month ago. We couldn't buy our first house yet because we couldn't get approved for financing (was self employed only for 1 year while looking for financing) so after the first of this year will be 2 years for me! My fiance and I should be able to finally purchase a house of our very own! Until then, and even after that point, we will continue to invest whatever funds we have in RE.

With little funding, I would likely look to several other areas of REI (there are so many, its hard to count them all) Whether that be getting your RE license, wholesaling, etc...

And NEVER be afraid to start. That was my #1 fear, and I believe the fear of 95% of new RE investors ... That first deal! Best of luck Sergio!

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  • Steve M.
    Realtor · Gallatin, TN · Member since 2009 · 292 posts · 164 votes
    16y

    Hey Sergio,

    Welcome to BP ... The best resource IMO for rookie and expert advice anywhere on the net when it comes to REI ....

    I'm much like you ... Except, I do have capital to work with. My fiance and I are actually leasing the house we live in now, but I bought my first duplex just a month ago. We couldn't buy our first house yet because we couldn't get approved for financing (was self employed only for 1 year while looking for financing) so after the first of this year will be 2 years for me! My fiance and I should be able to finally purchase a house of our very own! Until then, and even after that point, we will continue to invest whatever funds we have in RE.

    With little funding, I would likely look to several other areas of REI (there are so many, its hard to count them all) Whether that be getting your RE license, wholesaling, etc...

    And NEVER be afraid to start. That was my #1 fear, and I believe the fear of 95% of new RE investors ... That first deal! Best of luck Sergio!

    1Reply
  • Tamarra Banks
    Real Estate Investor · Baltimore, MD · Member since 2009 · 42 posts · 4 votes
    16y

    I'm new,anxious and renting too. I was in the loooong process of buying my own house but it just didnt work out for me. Even when i was looking to purchase my own home, i was researching REI. I was disgusted that i have to keep paying rent instead of a mortgage payment.But since i finally decided that im just going to jump into REI,i feel that it would make more sense for me to use money to invest instead of using for a down payment to get a 30yr mortgage.I want to start off wholesaling so that i can build up capital to then move into other areas.

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  • Tina G
    Real Estate Investor · NJ · Member since 2009 · 24 posts · 0 votes
    16y

    i bought a rental about 2 years ago and i have been renting apartments (for myself to live in) for over 5 years. i actually am working towards owning another rental and i have no intention of buying a home for myself yet, lol.

    it may be silly or strange to some, but i decided that i will probably buy my personal home to live in when i am making enough cashflow from my investments to cover my mortgage in whole or part. also, i honestly don't need a home; an apartment space suits me so why spend above my means and paycheck to paycheck when i really have no *need* for a house?

    if you have done your research and ready to invest in a property before you even bought your own house - go for it! owning a personal home is as important as you make. so if you don't need it then spend your money making money :)

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  • Charles Whitaker
    Real Estate Investor · Amarillo, TX · Member since 2008 · 173 posts · 15 votes
    16y

    Sergio,

    It is not unheard of to obtain a mortgage on an investment property while you are leasing, however, researching REI for two years and still not having a completed purchase is troublesome. I would think that you have a problem with commitment or a lack of desire. Either way, you need to tackle this problem first.

    To get into the market with no money would require you to do one of the following:
    -Save $(most obvious)
    -Wholesale or FLIP to build capital
    -creative finance(OWC, lease option, etc)

    Investment mortgages usually require a 10%-20% down payment. Find out exactly what you want in the realm of real estate and then go after it-relentlessly. May the best of luck be with you.

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  • Sergio W.
    OP
    NC · Member since 2009 · 4 posts · 3 votes
    16y

    I definitely appreciate everyone's input, all of you have been a great help. Tinarel, I don't think it's silly at all that you will continue to rent until your cash flow from properties is enough to pay your mortgage. I actually think that is a great idea and may be what I do as well because currently I live in a great luxury apartment at a great price and I couldn't imagine downgrading my living conditions to pay on a mortgage that is more than my rent.

    Charles, I will have to disagree with you on the conclusions you came up with. I have no problem with commitment nor do I have a lack of desire. My problem as I mentioned is that I don't have much cash to play with. I don't feel there is anything wrong with me researching for 2 years before I make a move. This wait is mainly because I haven't saved up enough money for my first property not to mention that I am only 23 yrs old so my credit scores aren't where I would like them to be to obtain the best rates, a full time student paying my own tuition and work a full-time job to support my girlfriend and I. I don't make the most money currently so it is rather difficulty to save up a down payment for an investment mortgage (30% down is average in my area according to my local mortgage broker). I go after everything I want in life and I achieve all my goals but I take precaution because I'm not only supporting myself so I have to evaluate my risks carefully.

    2Reply
  • Brian LevredgePro Member
    Investor · Chattanooga, TN · Member since 2009 · 1k+ posts · 903 votes
    16y

    Sergio,

    There is nothing wrong with renting a place and investing in properties. The banks do not care. What the banks do care about is your Debt To Income Ratio. If you've been researching RE investing then you are probably familiar with this. If not, take your monthly housing expense (not including utilities, insurance, etc) and divide it by your gross monthly salary. This gives you a DTI ratio on housing alone. You then add credit card payments, car payments,student loans, etc., to this to come up with a total DTI.

    Conservatively, you don't want more than a third of your total gross going towards housing. You mention that you are living in a luxury apartment although it's a good deal. If you are not making too much money and the apartment is eating up a lot of what could be saved, then you need to maybe think about moving someplace where you can save more. Better yet, see if you can become an onsite manager for property in return for discounted or free rent.

    1Reply
  • Charles Whitaker
    Real Estate Investor · Amarillo, TX · Member since 2008 · 173 posts · 15 votes
    16y
    Originally posted by Sergio W.:
    Charles, I will have to disagree with you on the conclusions you came up with. I have no problem with commitment nor do I have a lack of desire. My problem as I mentioned is that I don't have much cash to play with. I don't feel there is anything wrong with me researching for 2 years before I make a move. This wait is mainly because I haven't saved up enough money for my first property not to mention that I am only 23 yrs old so my credit scores aren't where I would like them to be to obtain the best rates, a full time student paying my own tuition and work a full-time job to support my girlfriend and I. I don't make the most money currently so it is rather difficulty to save up a down payment for an investment mortgage (30% down is average in my area according to my local mortgage broker). I go after everything I want in life and I achieve all my goals but I take precaution because I'm not only supporting myself so I have to evaluate my risks carefully.

    I am glad that you disagree, that shows the desire that I was after. As for the lack of funds, I cannot honestly feel the pain. I purchased my first flip at the age of 24, I believe that the deal cost me $325 to close. Of the houses that I have bought and sold only one of them actually cost me more than $1000 to close on it(not rentals, though). I do highly admire the fact that you are so ambitious, willing to go to school full time, maintain a full time job AND study REI. Most people can hardly do just one.

    You should look into wholesaling to build the capital that you need for rentals. The experience will be an eye opener. On one side you will learn valuable lessons from your market and simultaneously accumulate the much needed funds for a down payment. Also, what if you did save the $ for a down payment and bought a rental? At best you could walk away with $150/mo and then what? You would still have to acquire more $ for another down payment. My point is that you need another source of income, whatever it may be, to accelerate the purchase of rentals.

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  • Sergio W.
    OP
    NC · Member since 2009 · 4 posts · 3 votes
    16y
    Originally posted by Charles Whitaker:

    You should look into wholesaling to build the capital that you need for rentals. The experience will be an eye opener. On one side you will learn valuable lessons from your market and simultaneously accumulate the much needed funds for a down payment. Also, what if you did save the $ for a down payment and bought a rental? At best you could walk away with $150/mo and then what? You would still have to acquire more $ for another down payment. My point is that you need another source of income, whatever it may be, to accelerate the purchase of rentals.

    Thanks for the advice Charles, I have looked into wholesaling and I agree that it would be a great way to get started in real estate investing and build capital for less money out of pocket. But when I think about wholesaling, I think about finding investors within a short amount of time before the contract expires. I have a very busy schedule right now and I'm not able to go to many functions and network with investors. Can you suggest some other strategies for finding and building my investor list?

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  • Charles Whitaker
    Real Estate Investor · Amarillo, TX · Member since 2008 · 173 posts · 15 votes
    16y
    Originally posted by Sergio W.:
    Can you suggest some other strategies for finding and building my investor list?

    Their are numerous ways to accomplish this, easier to point you in the right direction then to reiterate.

    http://www.biggerpockets.com/forums/93/topics/22413-need-ideas-on-building-buyers-list-
    This link is a start - just search buyers list in the search field box.

    Like many others have stated before, IMO the best and easiest way to build your list is to actually have a great deal for sale. The buyers will flock to you, literally. You must have a few exit strategies in place in case you cannot get a signed contract before the closing date. Possibly be ready to either close on the property or have a contingency fee to back out.

    In the past I have used the sales price of other wholesale transactions (found through county clerk's records) to reference the market saleability of particular deals. I actually have a list of all the transactions of a few local wholesalers. The list includes purchase and sell price, same with the dates, and most importantly to whom the deal was sold to. Ah hah, the buyers list just grew.

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  • Sergio W.
    OP
    NC · Member since 2009 · 4 posts · 3 votes
    16y

    Great new, I have found a deal. It's actually my grandmother's previous home. It's in decent condition and she's willing to sell the property to me at a great price. This will be my first project. I'm taking the plunge. Thanks for all your advise!

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