BiggerPockets

jphsa,

The rental property business is ALL ABOUT THE NUMBERS. If you want to leave your 9-5 job, you MUST buy properties that will cash flow using the real world expense numbers (not the guru nonsense numbers). In almost every market, you MUST buy properties at a BIG discount if you want them to cash flow.

You are absolutely correct that it will become much more difficult to obtain loans once you quit your day job. I would strongly suggest keeping your job until you have enough money from the rentals to support your lifestyle. As a general rule, if you buy right, you should be able to get about $100 per unit per month positive cash flow. If you do the management and maintenance yourself, you will earn at least another $100 per unit per month. Therefore, for every rental THAT YOU BUY RIGHT, your spendable income will increase about $200 per month.

How many rentals do you need to leave your day job? If you make $4,000 per month, then you need 20.

Hope that helps,

Good Luck,

Mike

I also spend a lot of time wondering when I will be able to quit my 9-5 job. In fact I day dream about it everyday.
My concerns are not only having a financial basis to be able to purchase more property, but being able to not keep my current standard of living, and even increase it. There are also other things to consider, like health insurance for my family. That will be a big expense that I will have to take on if I no longer have an employer who pays for it. (My plan is to finance the insurance thru my LLC that I have established for the investments.)
So, I have taken my current income, and doubled it. It is a very rough estimate, but that is how much passive income I wll need before leaving my 9-5 job.
With my first investment just days under by belt, I am 25% there.

Good luck!!!

jphsa,

The best way to move from a job to a rental property business is to do BOTH until you can afford to live off of the rental property business. This will take a few years of VERY HARD WORK. The question is whether you are willing to pay the price to get there? I worked six 12-hour days per week for more than 2 years.

There isn't any easy or magical answer. Getting free from the 9-5 will require a LOT of work and will take sacrifice. Is it worth the price? YES!

Good Luck,

Mike

The statement is only true is you narrow the conversation to certain lenders or certain loan types.

1. Assume that after 10 mortgages many lenders can not handle you from their residential side. If they have a commercial division you will likely need to switch.

2. There are a few lenders who are portfolio lenders. They do not sell their loans. If the lender is a portfolio lender they can easily exceed the 10 mortgage limit that other lenders impose. They still might want to impose a limit so their exposure to any one borrower is capped. There are lenders who will go to 100 mortgages with one borrower. A limit but higher than many need.

So, the 10 mortgage limit can be a red herring or a true road block depending on what you want and how you handle lender imposed caps.

John Corey

Back to the lender question. There are two banks that I am told keep their own loans and don't sell them BOA was named as one. I don't think BOA is going to lend me over 10 mortgages as they are using FannieMae Desktop Underwriter software probably.

Also, who wants 10 investor mortgages holdng? I use commercial lenders as well but they want 20% down or cross collateralization and they go 15-20 years with a 5 year ballon. Fine if you don't plan to hold over 5 years. Rates are close to 8% right now. Great way to short term finance but I haven't really met a lender with no limits on number of mortgages--and I've done a bunch.

Also, wait until want a be investors start foreclosing on houses they can't hold in U.S. We'll be lucky to get a loan at all despite good credit.

Thanks Mike.

John Corey

Primo Coach,

Although I don't always agree with you, I do agree with you on this post. Having a large reserve in your savings account is extremely important before someone quits their job.

Good point.

A couple of years ago I was getting tired of being asked this exact question by people and more specifically people that wanted to be my students.

So I took a while, sat down and typed up what I call my " Boss Be Gone" plan. The timeline is 1 year.

In the end the key is " DEBT" . The reason you have a job is to pay your bills, right? If you didn't have bills you probably wouldn't work. So, the first thing is to look at your debt, do you have an actual working budget where you track your expenses in life? If you don't. DO ONE IMMEDIATELY.

Then figure out where you might cut back. Do you need the expensive car that you are making payments on? Could you do with a less " flashy" car? Do you need 400 TV channels on your cable?

If you sacrifice you can do this faster. Think about this.. if you and I both make 50K this year, but you have 40K of debt payments, and I have 5K, I now have 35K more than you in one single year. If you had an additional 35K this year, would that make you happy?

Let me leave you with this thought... Don't plan to replace your monthly income either. That is the wrong thinking in REI. Sometimes I get one deal every 6 months, but it is a doozy. So think about that you need say 40K to live every year. That is what you need to shoot for. Rather than saying I need 3,500 each month and shoot for just making 1 deal a month at 3,500k.

Primo is right in that you need to have some put aside before you cut the leash. But plan for it, be specific and it can come true, if you really want it to be true. To many people replace their job with another boss, for one where they are their own boss and you work more hours than you did before for less pay.

Good luck!

Getting back to the original question, one very beneficial strategy to quit the day job and avoid the credit/lending issue is to use partners. If you have the knowledge and expertise to locate, purchase, and manage properties, find someone with credit and no time or experience and have them get the loans for you. You can make them partners, or simply refi using commercial loans once the original loan is seasoned.
Keep in mind that combining several residential properties into one commercial loan can increase your interest rate and teh loan origination fees are generally higher, but if the numbers still work, then it is an alternative strategy for you.

Just food for thought.

An excellent assessment!