Loan Approval, Owning Multiple Properties, and Real Talk

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Loan Approval, Owning Multiple Properties, and Real Talk

Account Closed
OR · Member since 2016 · 10 posts · 6 votes

I'm hoping that someone sees this and can dive in with "real talk." I'm going to lay it out there, and as I'm learning through this initial start up process (and I'm a quick learner) that I'll be able to realistically figure out what we can do financially, what we can afford, what our realities might look like, and other pieces of sound advice. I've been reading Bigger Pockets for quite awhile but haven't seen someone ask the exact type of questions I'm wondering about, so I would appreciate the help of those of you who have gone before. 

I'm going to try and organize my questions in numbered order, so commenting on any or all of them would be super helpful. Thank you!

1) My husband and I are both educators. I don't have to say much more for you to understand that our salaries are not those of corporate execs or other similar jobs. We love what we do, but are hungering for more and other ways to maximize our earning potential. Many educators take on side jobs in the summer to supplement their income; we'd rather stay home with our family. I'd like to simply know: Can people making salaries within the 50k range own multiple investment properties, or is it much more challenging and more for those, "you have to have money to make money" types? 

2) We have about 100k in equity in our personal home. We're sitting around a 35% DTI right now. We have about $25,000 in reserves in the bank, though we'd prefer not to use that as a down payment because we're learning that banks are wanting about 6 months of mortgage payments in reserves, correct? My question for those of you who own multiple properties: If you take out conventional mortgages on your subsequent properties, how do you come up with the 20% needed for each down payment? Do you take out HELOCs on your previous properties? Make enough from rental income? Or do you just make enough in your day jobs to save and come up with the 20% required? Investing in our first rental property won't really be a problem for us if we find a property around the 100k mark, but it's trying to figure out how (realistically) we could (and how you all) fund your subsequent properties that I am most interested in.

3) What is the average or common path to financing that you as investors use most often to buy your properties? Have you accumulated a lot of weath so you can buy outright? Do you go the conventional mortgage route? Go for private investors? Work with investment partners? I'm really just wondering whether two teachers who make around 50k a year each can own multiple rental properties. Do banks count your DTI on all of your properties and add them up together? How can so many of you own multiple investment properties?

4) What is the realistic "start up" cost for securing each and every investment property? I'm reading a lot about hiring real estate attorneys, creating LLCs for each property owned, working with real estate agents, making repairs, etc. If you were to take a 100,000 property as a baseline, how much would you expect to bring (out of pocket) to each home at closing based on the consultations you have, etc.?

5) How did each of you get started in investing? Did you have no money? Come into a windfall/inheritance? Save your own money? Have a well-paying job that funded it? I'd love to hear your stories. 

6) And finally... how many of you own properties in other states and how did you decide on those cities and states to invest in? We live on the west coast where property values are astronomical and rental rates are stagnant and soft. Most people won't pay more than $2000 in rent for a prime property in the city, and yet city real estate prices are through the roof. There are virtually ZERO rental properties within 100,000. Because of this, I feel like there is no way we can invest in our state because we do not have the 40,000 - 60,000 needed as a down payment for a 250-300k SFH property that our state is laden with. Incomes are not matching housing prices which is a huge issue, so Oregon is just not a great place for investing right now. We have family in the south and have been looking at South Carolina, Arkansas, Texas, North Carolina and Florida. What are the pros/cons and potential issues (besides having to for sure hire a property management company) to consider when investing in other states? Are there sales taxes assocaited? (we don't have them in Oregon).

Thank you SO much for any help on any of my questions you guys can offer-- transparency and realistic information is appreciated. I have a lot of experience in real estate as I mentioned, but there are some gaps I'm facing information-wise when it comes to getting started and then funding multiple investments on a public salary. 

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Randy E.
Rental Property Investor · Durham, NC · Member since 2014 · 1k+ posts · 1k+ votes
10y
Originally posted by @Account Closed:

I'm going to try and organize my questions in numbered order, so commenting on any or all of them would be super helpful. Thank you!

1) My husband and I are both educators. I don't have to say much more for you to understand that our salaries are not those of corporate execs or other similar jobs. We love what we do, but are hungering for more and other ways to maximize our earning potential. Many educators take on side jobs in the summer to supplement their income; we'd rather stay home with our family. I'd like to simply know: Can people making salaries within the 50k range own multiple investment properties, or is it much more challenging and more for those, "you have to have money to make money" types? 

2) We have about 100k in equity in our personal home. We're sitting around a 35% DTI right now. We have about $25,000 in reserves in the bank, though we'd prefer not to use that as a down payment because we're learning that banks are wanting about 6 months of mortgage payments in reserves, correct? My question for those of you who own multiple properties: If you take out conventional mortgages on your subsequent properties, how do you come up with the 20% needed for each down payment? Do you take out HELOCs on your previous properties? Make enough from rental income? Or do you just make enough in your day jobs to save and come up with the 20% required? Investing in our first rental property won't really be a problem for us if we find a property around the 100k mark, but it's trying to figure out how (realistically) we could (and how you all) fund your subsequent properties that I am most interested in.

3) What is the average or common path to financing that you as investors use most often to buy your properties? Have you accumulated a lot of weath so you can buy outright? Do you go the conventional mortgage route? Go for private investors? Work with investment partners? I'm really just wondering whether two teachers who make around 50k a year each can own multiple rental properties. Do banks count your DTI on all of your properties and add them up together? How can so many of you own multiple investment properties?

4) What is the realistic "start up" cost for securing each and every investment property? I'm reading a lot about hiring real estate attorneys, creating LLCs for each property owned, working with real estate agents, making repairs, etc. If you were to take a 100,000 property as a baseline, how much would you expect to bring (out of pocket) to each home at closing based on the consultations you have, etc.?

5) How did each of you get started in investing? Did you have no money? Come into a windfall/inheritance? Save your own money? Have a well-paying job that funded it? I'd love to hear your stories. 

6) And finally... how many of you own properties in other states and how did you decide on those cities and states to invest in? We live on the west coast where property values are astronomical and rental rates are stagnant and soft. Most people won't pay more than $2000 in rent for a prime property in the city, and yet city real estate prices are through the roof. There are virtually ZERO rental properties within 100,000. Because of this, I feel like there is no way we can invest in our state because we do not have the 40,000 - 60,000 needed as a down payment for a 250-300k SFH property that our state is laden with. Incomes are not matching housing prices which is a huge issue, so Oregon is just not a great place for investing right now. We have family in the south and have been looking at South Carolina, Arkansas, Texas, North Carolina and Florida. What are the pros/cons and potential issues (besides having to for sure hire a property management company) to consider when investing in other states? Are there sales taxes assocaited? (we don't have them in Oregon).

 1) I bought my first rental house five years ago.  At the time, I made less than you, my wife and I combined made much less than you and your husband, and I had three small children to support.  It can be done.  It's less about how much you make and more about how strong is your desire to make it happen.

2) At that time, we had about $10K equity in our primary home and I had about $10K saved for the purpose of investing in an income property. Strike that. I had a total of $10K saved altogether, period, for investing and "life emergencies." For me personally, investing in a rental property was a life emergency. My DTI was a lot less than yours. When we bought our primary, we purposefully bought less than we could "afford" according to the some banks' opinion. We had no automobile payments at the time I bought that first income property, and essentially zero credit card debt. Our DTI was basically our mortgage and nothing else. I planned it out that way.

3) My finance path?  I saved for over two years until I had $10K.  I asked my bank for a Line Of Credit and they provided one - a lot smaller than I'd hoped it would be.  I bought a house that cost a little more than the LoC amount, used my savings to get it rent ready and rented it to a tenant.

4) Every property is different. Also, every investor is different. I didn't seriously consider creating an LLC, hiring an attourney, or doing anything extraneous. My goal was to reduce debt, save cash, and acquire a property. That was what I stuck to. Maybe those making more money than me can indulge in those extras, but I wasn't going to be held back by trying to keep up with pockets bigger than mine. I will say this -- quickly looking at homes in your area, I agree $100K seems to be a good target. However, if I were you, I'd look for something a little cheaper and be ready to pounce on it when it appears because it likely won't last long on the market. Also, I'd prepare myself to use some/most of that $25K savings to get it rent ready. Yes, you may need to show some savings to qualify for the loan, but there's no rule that says you can't spend it AFTER you get the loan. If your tolerance for risk is not high enough to spend a substantial part of that savings, then keep saving and delay your purchase until you have enough to satisfy your risk tolerance AND to spend enough to fix a house to be rent ready.

5) As stated above, while making less than you I saved for over two years until I had about $10K.  Then I went to my credit union and applied for a LoC to provide the rest of the money needed.  Once I rented the house, I applied every cent of the rental income toward paying down the LoC.  Also, I continued to save as I had the two years prior, also applying that money toward the LoC.  (So, I guess I wasn't really saving it ;-) )

I was lucky in that I bought my first property at just about the lowest time during the recession.  That was also, more or less, a conscious decision by me.  I kept up with the news that the recession was upon us, and I knew that would be a great time for me to invest because the prices would drop.  I saved, prices continued to drop, I saved, I took out the LoC, I pounced.  Today, five years later, I own three rental properties, and if all goes well, I'll buy two or three more by the end of this year.

6) All my properties in located in the city where I live.  Actually, all are within a ten-minute drive of my primary residence.  That's ideal for me.  I realize it won't be practical and/or easy for other investors to purchase so close to where they live.  Unfortunately, I don't have any firsthand advice about investing far from where you live, but I've read enough here on BP to know it's possible.  I would watch for high property taxes, such as in SC where some counties charge a lot more for investment properties than for primary residences. 

Good luck, Megan.  If you want this bad enough, you can do it.  And if you plan wisely enough, you can do it successfully. 

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  • Neal Collins
    Developer · Portland, OR · Member since 2014 · 732 posts · 490 votes
    10y
    Megan Love I can assure you that rents are not as stagnant or soft in our area as you may think. It's true that we have higher costs per rent than other areas of the country, but we also have a lot of factors going on in our favor. Many people, myself included, got started in real estate with a lot less than you have. It's not about time, money, or financial power, it's about mindset. Dont put yourself in a box due to your occupation. Got out and create the life you want to live. Best of luck to you!
    1Reply
  • Account Closed
    OP
    OR · Member since 2016 · 10 posts · 6 votes
    10y

    @Neal Collins Thank you for your input! I'm curious about this-- and maybe it's just the market in the past year-- but I've not been able to find a viable property under $110k anywhere in the area. I think the biggest hurdle for me is the fact that even though there are some great homes out there, most properties that would have a good rental value are going to be somewhere along the lines of starting at $200k or more anywhere in the metro area (all the suburbs outside of Portland). The downside to that is the 20 - 25% down required which I don't have right now. Another route we're open to is owner-occupied loans, but of course those have their pros and cons as well. It would just have to be the right property. It seems to me that if I wanted to start out with a property in the 100k range due to the down payment and equity we have and what we can afford, that I need to look somewhere out of state. (Or do some major rehab first, too, if it was a fixer instead.) I've seen some properties out there that are in foreclosure but of course the auctions require cash-only. I guess to me it seems like trying to buy a rental property in the Portland area is really difficult, but I could be wrong. 

    0Reply
  • Chris Parrish
    Flipper/Rehabber · Bend, OR · Member since 2016 · 209 posts · 87 votes
    10y

    Hey @Account Closed,

    Welcome to BP! You have a lot of great questions, but I will address #5. You asked how people get started in real estate and how do we come up with the baseline of cash for our purchases. That's an excellent question! There are obviously numerous ways people come up with the money - big salaries, inheritance, etc. However, most (maybe all) of the investors that I know personally did not have any of those things when they began. Some of my investor friends saved money for a few years and then finally were able to make a purchase. Others, like you, began by purchasing a home that appreciated in value over time. They then sold that property, or pulled out its equity and used it to finance another property or two. You see, once you get yourself in a position like yours (with 100k in equity), you are in a pretty good position to begin investing. You already have a net worth of over 125k, which is a heck of a lot more than the average person looking to get into real estate investing. If you can find a way to leverage what you have in order to increase your investment beyond your personal residence, you will be on your way to building wealth. 

    There is a lot to this game, but there are hundreds of books out there that show you how to do what your trying to do. Also, there is a lot of great knowledge throughout bigger pockets. So keep asking questions, keep learning, and you will get where you want to go!

    Feel free to message me or give me a call if you want to chat in more details. I would be happy to chat with you guys!

    Chris Parrish

    2Reply
  • Account Closed
    OP
    OR · Member since 2016 · 10 posts · 6 votes
    10y

    @Chris Parrish I really appreciate your response - a boost of confidence as well to know that we're not too far off from the direction and capabilities we would like to go. Thanks for your really helpful input. Now to just find some good starter investment homes here in Oregon... :) 

    0Reply
  • Michael Schmeltzer
    Portland, OR · Member since 2016 · 6 posts · 1 vote
    10y

    @Account Closed great questions. I'm kinda in the same boat as you are. Iv got about 75k in equity. From other forums on here, what iv read, and people I have talked to have talked about looking 2 hours away. Iv seen some decent ones down south like Eugene, don't know if you've looked outside Portland metro. Finding something at the  100k is going to be difficult especially without having an in. For me an out of state seems like could be a better deal but for my first investment property I would rather do a more local property to get the feel for it. Good luck! 

    1Reply
  • Account Closed
    OP
    OR · Member since 2016 · 10 posts · 6 votes
    10y

    @Michael Schmeltzer I've begun to look in Eugene/Corvallis which is the direction I think I'd head if I do stay in Oregon. I 100% agree about preferring to start here just so I can manage it on my own and keep an eye on it. Hiring a property manager would be a worthwhile investment out of state, but of course there are costs associated. One thought I had was to choose a location that had a solid economy, good schools, trackable growth, strong rental market but was in a city (outside of Oregon) where we have family. That way at least someone could keep an eye on it for us or at least speak with confidence to the area. Good luck in your search and I hope you land your first property soon! :) 

    0Reply
  • JR T.
    Financial services executive · Frederick, MD · Member since 2015 · 609 posts · 341 votes
    10y

    1. It's going to be far more difficult. How old are you? If you take on some 30 year conventional  loans you would have a nice asset. But will you have time to enjoy it? Don't forget 30 years no vacations no extra  money etc cause all of that money and then some will go into the properties.

    2. My day job puts me into real estate. Investors start young and hope to be deleveraged by retirement. You may be able to refinance your first one after you stabilize it to get another down payment. You also might find a motivated seller willing to provide financing. Closing costs run 3 to 6k. 

    3. You could build a nice portfolio of rentals using conventional loans. If I were you I'd target 3 to 4 unit properties. There's a 4 property max for conventionals and each one must have 4 or fewer units. You'd clear 5 to 7k per month additional income once you paid back your lenders. Your DTI will improve as your loan applications reflect your rents. Conventionals can be had for 3% down. I don't suggest 3%, but the option is there if you find the right deal.

    4. There are expenses sure. You'd be just fine taking title yourself and keeping the properties well insured.

    5. My financial services business took off. All the new regulations on my industry are making it very difficult for companies like mine, under 50 employees, to survive. I'm hoping this will be my next thing and retirement. I'm a very disciplined saver. The first three years my company was open I lived in a rented room for 400/mo. 

    6. I started 25 miles away and that was almost too far. I'm strongly opposed to these out of area pitches. My parents retired in Lebanon we go to Dundee for wine tasting. Far but not too far if you're motivated. On the drive I've seen several areas that look good for a small investor.

    Please do think about the fact that you'll have a very satisfying retirement without this. And you'll enjoy the next 30 years. As with most things the opportunity is there, but getting it will mean lots of sacrifices.

    Good luck!

    0Reply
  • Matt Garboden
    Investor · Portland, OR · Member since 2015 · 38 posts · 24 votes
    10y

    I'm kind of in the same boat and you really shouldn't be too discouraged. The route I've taken has been to move into a new residence and rent the old one. Rinse and repeat. It lowers the initial down payment needed (assuming an FHA loan) and makes it a lot easier to get into a property in Portland. Moving every few years might be a little tougher with a family, but it's an option, at least to get started.

    2Reply
  • Account Closed
    OP
    OR · Member since 2016 · 10 posts · 6 votes
    10y

    @Matt Garboden are you primarily sticking within the Portland-metro area? Are you managing multiple properties or have you sold some of your previous ones? 

    @JR T. - we live in Dundee. ;) That was our smart investment! I love our home... built it ourselves last year from the ground up... but darn it if it wouldn't make a fantastic rental property. It was rented out all summer last summer for family vacations to wine country while we traveled to Europe. I grew up moving every 2 or so years with my dad as a builder so I'm used to it. Thanks for the sound advice. I appreciate it. 

    0Reply
  • JR T.
    Financial services executive · Frederick, MD · Member since 2015 · 609 posts · 341 votes
    10y

    Duplicate

    0Reply
  • JR T.
    Financial services executive · Frederick, MD · Member since 2015 · 609 posts · 341 votes
    10y

    It's easy to not fully understand just how many wealthy people there are in the US. 10.4 million millionaires, 300,000 new ones last year.

    A new millionaire appears every 1 minute 45 seconds. 816 new millionaires every single day.

    If I was going to list the names of every millionaire in the country today and could do one name per minute it would take 19 years 288 days of round the clock work to list every name.

    It's truly amazing how vast our economy is.

    1Reply
  • Randy E.
    Rental Property Investor · Durham, NC · Member since 2014 · 1k+ posts · 1k+ votes
    10y
    Originally posted by @Account Closed:

    I'm going to try and organize my questions in numbered order, so commenting on any or all of them would be super helpful. Thank you!

    1) My husband and I are both educators. I don't have to say much more for you to understand that our salaries are not those of corporate execs or other similar jobs. We love what we do, but are hungering for more and other ways to maximize our earning potential. Many educators take on side jobs in the summer to supplement their income; we'd rather stay home with our family. I'd like to simply know: Can people making salaries within the 50k range own multiple investment properties, or is it much more challenging and more for those, "you have to have money to make money" types? 

    2) We have about 100k in equity in our personal home. We're sitting around a 35% DTI right now. We have about $25,000 in reserves in the bank, though we'd prefer not to use that as a down payment because we're learning that banks are wanting about 6 months of mortgage payments in reserves, correct? My question for those of you who own multiple properties: If you take out conventional mortgages on your subsequent properties, how do you come up with the 20% needed for each down payment? Do you take out HELOCs on your previous properties? Make enough from rental income? Or do you just make enough in your day jobs to save and come up with the 20% required? Investing in our first rental property won't really be a problem for us if we find a property around the 100k mark, but it's trying to figure out how (realistically) we could (and how you all) fund your subsequent properties that I am most interested in.

    3) What is the average or common path to financing that you as investors use most often to buy your properties? Have you accumulated a lot of weath so you can buy outright? Do you go the conventional mortgage route? Go for private investors? Work with investment partners? I'm really just wondering whether two teachers who make around 50k a year each can own multiple rental properties. Do banks count your DTI on all of your properties and add them up together? How can so many of you own multiple investment properties?

    4) What is the realistic "start up" cost for securing each and every investment property? I'm reading a lot about hiring real estate attorneys, creating LLCs for each property owned, working with real estate agents, making repairs, etc. If you were to take a 100,000 property as a baseline, how much would you expect to bring (out of pocket) to each home at closing based on the consultations you have, etc.?

    5) How did each of you get started in investing? Did you have no money? Come into a windfall/inheritance? Save your own money? Have a well-paying job that funded it? I'd love to hear your stories. 

    6) And finally... how many of you own properties in other states and how did you decide on those cities and states to invest in? We live on the west coast where property values are astronomical and rental rates are stagnant and soft. Most people won't pay more than $2000 in rent for a prime property in the city, and yet city real estate prices are through the roof. There are virtually ZERO rental properties within 100,000. Because of this, I feel like there is no way we can invest in our state because we do not have the 40,000 - 60,000 needed as a down payment for a 250-300k SFH property that our state is laden with. Incomes are not matching housing prices which is a huge issue, so Oregon is just not a great place for investing right now. We have family in the south and have been looking at South Carolina, Arkansas, Texas, North Carolina and Florida. What are the pros/cons and potential issues (besides having to for sure hire a property management company) to consider when investing in other states? Are there sales taxes assocaited? (we don't have them in Oregon).

     1) I bought my first rental house five years ago.  At the time, I made less than you, my wife and I combined made much less than you and your husband, and I had three small children to support.  It can be done.  It's less about how much you make and more about how strong is your desire to make it happen.

    2) At that time, we had about $10K equity in our primary home and I had about $10K saved for the purpose of investing in an income property. Strike that. I had a total of $10K saved altogether, period, for investing and "life emergencies." For me personally, investing in a rental property was a life emergency. My DTI was a lot less than yours. When we bought our primary, we purposefully bought less than we could "afford" according to the some banks' opinion. We had no automobile payments at the time I bought that first income property, and essentially zero credit card debt. Our DTI was basically our mortgage and nothing else. I planned it out that way.

    3) My finance path?  I saved for over two years until I had $10K.  I asked my bank for a Line Of Credit and they provided one - a lot smaller than I'd hoped it would be.  I bought a house that cost a little more than the LoC amount, used my savings to get it rent ready and rented it to a tenant.

    4) Every property is different. Also, every investor is different. I didn't seriously consider creating an LLC, hiring an attourney, or doing anything extraneous. My goal was to reduce debt, save cash, and acquire a property. That was what I stuck to. Maybe those making more money than me can indulge in those extras, but I wasn't going to be held back by trying to keep up with pockets bigger than mine. I will say this -- quickly looking at homes in your area, I agree $100K seems to be a good target. However, if I were you, I'd look for something a little cheaper and be ready to pounce on it when it appears because it likely won't last long on the market. Also, I'd prepare myself to use some/most of that $25K savings to get it rent ready. Yes, you may need to show some savings to qualify for the loan, but there's no rule that says you can't spend it AFTER you get the loan. If your tolerance for risk is not high enough to spend a substantial part of that savings, then keep saving and delay your purchase until you have enough to satisfy your risk tolerance AND to spend enough to fix a house to be rent ready.

    5) As stated above, while making less than you I saved for over two years until I had about $10K.  Then I went to my credit union and applied for a LoC to provide the rest of the money needed.  Once I rented the house, I applied every cent of the rental income toward paying down the LoC.  Also, I continued to save as I had the two years prior, also applying that money toward the LoC.  (So, I guess I wasn't really saving it ;-) )

    I was lucky in that I bought my first property at just about the lowest time during the recession.  That was also, more or less, a conscious decision by me.  I kept up with the news that the recession was upon us, and I knew that would be a great time for me to invest because the prices would drop.  I saved, prices continued to drop, I saved, I took out the LoC, I pounced.  Today, five years later, I own three rental properties, and if all goes well, I'll buy two or three more by the end of this year.

    6) All my properties in located in the city where I live.  Actually, all are within a ten-minute drive of my primary residence.  That's ideal for me.  I realize it won't be practical and/or easy for other investors to purchase so close to where they live.  Unfortunately, I don't have any firsthand advice about investing far from where you live, but I've read enough here on BP to know it's possible.  I would watch for high property taxes, such as in SC where some counties charge a lot more for investment properties than for primary residences. 

    Good luck, Megan.  If you want this bad enough, you can do it.  And if you plan wisely enough, you can do it successfully. 

    5Reply
  • Ralph R.
    Investor · Bethel, AK · Member since 2013 · 1k+ posts · 852 votes
    10y
    Megan Love There is a maximum no of 10 Fannie /Freddie loans for investors to use. This is a federal limit. Many banks choose to hold people to a 4 loan limit. You gotta shop different banks and lenders and find who works for you. There is also portfolio loans and commercial loans with no limit. Don't get concerned that you can only have x properties or Y loans. There is no limit. You just change how u do it. LLC's are liability protection and won't be necessary until after you max out your conventional loans, as you cannot put a property financed with a Fannie or Freddy loan in an LLC. Buy an umbrella policy instead. Much much cheaper. I have multiple properties and still not needing a corporation. The equity in your house would buy more than 1 rental. but I would never recommend approaching it that fast. I bought one a year at first. Each one has to "season". it takes some cash to get insurance, renters, advertising etc etc. I let the property settle in good before I start looking for another. This year I finally was able to buy 2. You need to learn to borrow money manage people ( tenants and or PM's). Etc etc. go slow. Build a solid foundation then expand on that. If you choose to use the equity in your home do not be afraid to expand your search a little bit but not too far. Always figure on a PM even if you don't plan on using one. You may get tired after you pick up a few doors and want a PM. I don't own an income property within 2500 miles of my home. I also took some hard high dollar lessons in the beginning. Every once in a while I get lax and learn a new lesson. ( excuse for missing something and spending money I shouldn't have had to spend). Needless to say I have PM's and manage the Pm's It's easier. Part of any good investment strategy is fixing your home finances. Read rich dad poor dad for some good information on this. You need to live below your means. Wealth building requires a different mind set and way of thinking than you are used to. The knowledge you need to build wealth is not found or taught in any public school. Your gonna make mistakes every successful person does an they learn from it and move on. You have to think out of the box and get past the idea you can't do something.. There is no right or wrong answer but rather success or failure. There is no shame in failure only a lesson learned. Wealth is measured in time not money. In other words how long can you live your current life style if you and your husband both became unemployed? That's how wealthy you are. There are many opinions and ideas but I am 63 and do not plan or want to ever own my properties. I would rather sell at a profitable time and buy bigger or more properties. As with anything in life if you are not growing you are stagnating. I started late in life but l have been working at it steadily for 10 years. When I came here I had 4 duffel bags a dog a job and a desire to succeed. Fast forward 10 years and I've closed on two properties this year alone. My boat,cars, and snow machines are paid for. Our household income is about 1/3 more than what you indicated and both work 2 jobs to earn it but Remember gas is 5.99 a gal. Milk is around 6.50. A case of Alaskan Amber beer is $60.00. We choose to live below our means in order to buy real estate. This is what works for my wife and I. RR
    3Reply
  • Brent Coombs
    Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    10y

    @Account Closed, I don't agree with @JR T.'s comment: "Don't forget 30 years no vacations no extra money etc cause all of that money and then some will go into the properties". Why? Because (so long as you buy proper "deals"), it's your TENANTS who will be paying for ALL those repayments and repairs, AND netting you extra cash into the bargain!

    The trick is: make sure that the first one you buy (and every subsequent one too) ALREADY has the potential to be worth about 50% more than your Offer price, once you've put your wise design and rehab ideas* into effect. THEN, once it appraises for that extra value, your LENDER gives you your next deposit as a cash out refi - no more of your own money required! 

    See, vacations won't be off your agenda after all! All the best...

    * You've seen those Flipping shows on TV, right? Well, you'd be doing similar bargain hunting, and rehabbing, but, not for the purpose of selling! Nevertheless, that's another extra $ strategy...

    3Reply
  • Randy E.
    Rental Property Investor · Durham, NC · Member since 2014 · 1k+ posts · 1k+ votes
    10y
    Originally posted by @Brent Coombs:

    @Account Closed, I don't agree with @JR T.'s comment: "Don't forget 30 years no vacations no extra money etc cause all of that money and then some will go into the properties". Why? Because (so long as you buy proper "deals"), it's your TENANTS who will be paying for ALL those repayments and repairs, AND netting you extra cash into the bargain!

     I have to say that while I understand where JR T is coming from, I think he exaggerated somewhat.

    Yes, unless you're making a lot of money, get a large inheritance, or stumble across the mother of all deals, you will have to sacrifice something to get going in this (or any other) business. 

    As I said above, I saved for 2 years before buying my first property, living off a lot less than I was earning.  And I continued to do that for nearly 2 years after I bought that first property.  That meant very few new clothes for me, practically no vacations, and very few nights out dining with the family or hanging with my friends.  I managed to hold onto my Fantasy Football teams though. :-)

    Was it all worth it? Hell yes. My wife and I could have had a comfortable life without REI, but it would have been a precarious form of comfortable. If one of us suffered some injury or debilitating illness that prevented working, we would have survived but been forced to live that life of sacrifice forever. If one of us wanted to stay home with the children, we could have survived but we would have been forced to live that life of sacrifice forever. Every big ticket item (long vacation, stylish automobile, new furniture, HVAC replacement in our home, etc) would have required either months of saving and planning and/or dipping heavily into savings. With the "profits" from REI, things are better than ever before and there is a concrete promise that things will only get consistently progressively better in the future.

    A little sacrifice lays the foundation for a lifetime of wealth. And like our Alaskan friend pointed out above, "wealth" isn't measured necessarily in money, but in time. But that sacrifice is not 30 years of sacrifice. For me, it was about 4 years. We just took a few days to go to the beach. Before, that would have been our yearly vacation. Looking forward, we should be able to take vacations like that three or four times a year, and in a couple of more years of REI, we can do that ten times a year.

    A lot of people aren't willing to make that sort of sacrifice.  That's a decision everyone must make for themselves.  And that's a decision everyone must live with.  I'm happy with what that temporary sacrifice has enabled for me.

    Some people say I'm "lucky" to be in the position I'm in now.  Luck was a small part of it.  First came the planning, then the sacrifice, then the hard work, then more sacrifice, and yes, a little bit of luck along the way.  But what they mean by "lucky" is the end result just fell out of the sky and chose me to fall on.  No, I made the sacrifice many before me chose to make.  And those who call me lucky chose to avoid such sacrifice and they'll live out their lives as 95% of people do.  That's okay both ways, but realize it's a choice.  It's not luck.

    PS - I am but a small fish in this world of REI. I don't own apartment complexes. I don't own shopping malls. I don't own seven-story commercial properties in the center of large cities. I own three little houses that earn me less than you make. But they have absolutely changed my family's life for the better and I've never regretted making that decision. Either my wife or I will be able to quit work in two years. I feel very fortunate to have made the decision I made.

    5Reply
  • Neal Collins
    Developer · Portland, OR · Member since 2014 · 732 posts · 490 votes
    10y
    Randy E. Thanks for sharing your story. I find your drive and commitment quite inspiring. What are you doing with your current properties? Being able to retire off 3 SFRs in a couple years would be amazing. They must be cash cows. Megan Love I hope you don't feel a pressure just to jump in and buy the cheapest place listed on the market. There is so much information and knowledge surrounding real estate that it really is worth it to be a student first. It took us about a year to buy out first property. That's mainly because we didn't know what we were doing and had a limited framework to work with. You may not have enough money to put down for a conventional mortgage but there are many other ways to skin a cat. Leverage is the name of the game in a lot of scenarios, but that comes with making smart buys. You can always partner with people, use your funds to invest with others more experienced, look for different assets classes, or, and this I truly believe is the best, is add tools to your tool belt so that you can handcraft deals that fit your life and scenario. A great start is by reading Brandon Turner's book on Investing With Low or No Money Down. The lady who sold us our first property wanted an income stream and not a lump sum so she could continue to receive her medical benefits. It essentially was structured so that we paid $10,000 worth of back taxes as our down payment, and $500 per month for 30 years thereafter. That transaction not only transformed the seller's life and helped her out of a bad situation, but it also changed ours. That one deal then enabled us to take down a beautiful Victorian multifamily that we live in today. These aren't run down shacks out in the middle of no where. These are highly desirable inner Portland properties that many on this site profess to be too expensive or don't pencil for cash flow. Let other people think that the only move is to invest out of town or out of state. That only thins the herd. If you do your homework and decide that investing out of state is absolutely the way to go to fit your investing criteria/profile, then by all means go for it. But do it only after making an informed decision.
    1Reply
  • Account Closed
    OP
    OR · Member since 2016 · 10 posts · 6 votes
    10y

    @Neal Collins - on your Victorian property, are you doing an owner-occupied loan on that right now or did you just fall in love with it and not want to leave? ;) There are a couple of beautiful properties I've seen (Victorian multifamilies) in the greater Portland area right now, so I'm curious to see how those work with tenants living in them. I only remember going in them in college towns (Corvallis, etc.)-- reminiscent of fraternities. :) Do you have rentals in the other "apartments" within your home? 

    As far as the seller-backed loan you received, did you end up refinancing it when you wanted to sell (I'm assuming you sold that first property?) or did you end up paying it off based on steady rental income? I think that you're right in the fact that a good deal with possible seller financing could be a strong route. It's how my grandpa was able to sell his duplex in Forest Grove and got an amazing deal (albeit 20 years later) that transformed his retirement life as well. All things worth considering, for sure. I definitely want to read Brandon's book; I have a couple of books coming in the mail that I'm looking forward to. It took us awhile to settle on our two homes we bought and built and our success with those homes just in terms of equity growth was unplanned, and yet an educated, calculated risk. I've seen this play out throughout my life just growing up in the industry. I have don't really have anyone who is considered a real estate investor in my family so that is the one gap area of learning I have. I'm really appreciative of your time in sharing so many valuable insights. 

    1Reply
  • Robert Norvell
    Investor · Fort Smith, AR · Member since 2013 · 150 posts · 32 votes
    10y

    Good god, you have so much to work with. Do a cash out refi on the house to drop your debt to zero and have cash for an initial down payment. Or save your money for just a bit and find a deal to pay cash for. If you pay cash for the deal then you can BRRR it and just recycle the same money over and over to build your inventory.

    2Reply
  • Account Closed
    OP
    OR · Member since 2016 · 10 posts · 6 votes
    10y

    @Brent Coombs thanks for that. I think everyone likely approaches their financial situations different in regards to their equity, investments, loans, cash flow and lifestyle habits. Travel is a personal investment for us. We choose to go without other things so we can travel 2 - 3 weeks a year and that's fundamentally important to us. We rent our house out on Airbnb in the summers and because we have to be gone, we use the income we receive to fund our travels. We have one car payment but we also just spend our money differently. In some respects we're too busy to go out and buy stuff anyway and we live too far away from any shopping centers which is a definite plus on our spending habits. I know once we invest in a property it will continue to shape the way we save and spend, as every major life purchase and investment does. Right now though, we're just continuing to save where we can and invest in other areas. 

    0Reply
  • Matt Garboden
    Investor · Portland, OR · Member since 2015 · 38 posts · 24 votes
    10y

    @Account Closed So far everything has been in the Portland area. The last purchase was about a year and half ago, so the market is a bit tighter now. I'm currently looking at alternatives (out of the area), but like everybody else that is relatively inexperienced, I'm a bit nervous about investing out of state. As for the ones I have, I still manage them personally. It's pretty easy these days to find good tenants that pay on time and take care of the property.

    0Reply
  • Account Closed
    OP
    OR · Member since 2016 · 10 posts · 6 votes
    10y

    @Randy E. - great insights, especially regarding your path to investing and what it took to get there. I appreciate your transparency. In some aspects I'm envious that we're not located in the southern region like you are. I have family all over the Carolinas and besides Oregon, that's another location I'm really interested in. I of course would prefer to live close to my properties for a number of reasons, but that may or may not happen. We'll see when we find the right house at the right price, where it's located. :) 

    0Reply
  • Account Closed
    OP
    OR · Member since 2016 · 10 posts · 6 votes
    10y

    @Matt Garboden - I think finding renters in the Portland area is the easy part; finding a property that is a good deal is the bigger challenge. 

    Also, I'm curious on this topic: How many of you have bought any properties at an auction or as foreclosures? Does the bank lend on foreclosed properties? It seems like so many of them these days are going to auction.com where the terms are cash only. I have zero experience in this area, other than remembering back to 2011 when my husband and I bought our first house and the year prior we looked extensively at short sales and foreclosures and had an extremely difficult time trying to line up financing for the properties. However, with shows on TV these days highlighting the relative ease (and I'm aware it's all for TV) of buying foreclosed properties or auction properties, I'm curious what the everyday investor's experiences are and not the reality TV investors. 

    0Reply
  • Neal Collins
    Developer · Portland, OR · Member since 2014 · 732 posts · 490 votes
    10y
    Megan Love The multifamily we bought was on an owner occupied loan which was nice because the income from the other units counted towards qualifying income. The original property we bought on seller financing was structured so that there was no due on sale clause as long as the trust deed was secured against real property with sufficient equity and cash flow. In the end we had a quarter of a million dollars come to us at the close of the sale with half of that in the form of debt at 2% annual interest. The MF property then became a great place to recollateralize the original trust deed. We were able to use those funds to rehab the MF, as well as purchase more MF properties...one of which was another 4-plex that we are now rolling up into an 11-plex. We are currently in the process of refinancing our MF home property to pull cash out again to use those funds for more acquisitions and rehabs. We were able to leverage that initial $10,000 into first 1 unit, then 4, then 8, then 10, and if everything goes smoothly in escrow over the next month, 23. Granted we have picked up some private financing on the way once we started to understand what we were doing, but it started with that first one. When I say "we" I mean my wife and I. Our backgrounds are in international development and NGO management. Nothing that gives us any kind of competitive advantage in real estate. We are very much like you and want to build a little nest egg for our family, but we choose to do that by investing in our community. I get on these forums everyday to learn from others because there are so many people doing amazing things that I want to learn about. Without these people pushing my beliefs and mindset I would still probably be on the hunt for a $100,000 house out in the sticks that I could buy using a conventional loan hoping that at the end of the month it would cash flow $100-200 per month. That's why I encourage you to continue to educate yourself so that you can see that opportunity exists all around us regardless of the fact that we live on the west coast where values are higher than rust belt states.
    3Reply
  • Ralph R.
    Investor · Bethel, AK · Member since 2013 · 1k+ posts · 852 votes
    10y

    @Account Closed  I would like to point out a couple things I've learned about out of state investing. Cash flow pays the bills. Value add or appreciation  both build wealth.   There are many company's out there that will offer to sell you an already rehabed property complete with tenant and property manager. They will even provide or require you use their lender. While these properties may or may not cash flow and require little effort on your part they typically do not appreciate much and the company has already rehabed them so the value add is gone. For this reason I choose to find my own properties, realtors, locations, and PM,s. That way I can get the value add too. It's more challenging more risk and probably slower.  It does however allow me to collect all rewards. I have to agree with both  Brent and Randy above. They have both offered sound advice. RR

    0Reply
  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    10y

    @Account Closed, my little crystal ball shows that one distinct possibility is 3% to 5% down, FHA or FNMA, live in it for at least a year while saving up your 3% to 5% down on the next one & improving the place you are living, convert the improved departing residence into a rental, rinse and repeat.

    FHA in your scenario will make it a PITA to use departing residence rents.

    I'd suggest sticking to FNMA for SFRs, and only using FHA for multi-units.

    0Reply
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