Failure to launch, no luck so far

150 Replies

Hi, I'm 23 yrs old and have been trying to get started in real estate investing. But no luck. I know this wasn't going to be easy but it almost feels impossible. I finally tried to get pre qualified for a loan of about $80,000 to $90,000 or so. The loan officer that took my application finally called back and pretty much told me I can't if I don't have about $15k-$20k to put down. She said I don't make enough to support a loan of that much. I make about $2600 a month and have only my truck payment of $560 a month. She said with the loan payment i would have too much debt to income and would not qualify. She also specifically asked me if it was for myself or to rent out. I know I've heard before to not say it's an investment property. What is the best way to build capital or buy your first property?

I also know a FHA loan will work but I don't have a house for myself and I don't want to be in a bind when I start my own family. I have a friend of mine who bought a house and he's renting it out and letting it pay itself off but now he can't get a loan to buy a house for himself and he makes very decent money.

I really just don't want to fail. I have a pretty good feeling I can do it but the upfront capital to get started is what's mostly stopping me.

Any feedback or tips would be greatly appreciated!

TIA

Originally posted by @Omar Cantu :

 She also specifically asked me if it was for myself or to rent out. I know I've heard before to not say it's an investment property. 

First off, stop listening to those people - that's mortgage fraud. Second, I would seriously consider getting a cheaper car, since that is a big part of you not getting the loan. And finally, I'd see if you could find a cheap duplex to house hack as your first investment. 

Good luck!

Medium logoJason Hirko MBA, Corridor Funding | [email protected] | (512) 560.7985 | http://www.corridorfunding.com

If you want to be successful in real estate you really need to get connected with someone who will offer an internship. Without the proper training and education you are really setting yourself up for failure.

Jim Sakalis

Building capital should be common sense, change your budget and spending habits so you spend less than you make. And/or go make more money. Why do you have a truck payment of $560 wow thats insane, is it for you self employed business and is necessary? If not get rid of that waste. Also, it appears you have only talked to one lender, come back after youve talked to 10+ and still know they wont lend to you. Diversify it between different typed lenderslike small mid and large banks, various brokers, etc. If your friend makes decent money, not sure how he cant find a lender, maybe he hasnt found one that will consider the rental income against the imvestment house payment.

Also, the part about not saying its an investment property, that would be considered mortgage fraud and is illegal lol.

Based on your post i think you need to spend a lot more time educating yourself.

Jason, Jim, Michael,

Thanks for the feedback. And to clear up the whole mortgage fraud thing. I had a feeling that was false information and I did tell her it WOULD be an investment property. I just wanted to ask and get real answers.

Also I know my truck payment is a big drawback but I can't just get rid of it. I don't have any bills right now and that's why I bought it while I can. I know that might sound selfish but I'm only human. I know there has to be other ways around that.

I would like to purchase a duplex actually and rent both units out to speed up my ROI but now I was thinking of doing a fix and flip to gain the capital faster.

I'm learning as much as I can and I do need a long way to go but I'll get there now that I have started posting and interacting with you all.

I'm nobody.  You asked for the advise and three pros point out to you that $560/mo for a truck is a lot for a guy just starting out.  You're response seems to be that you just can't.     

It's a concern that you seem so attached to the vehicle even though giving it up could free up from of your monthly cash as well as lower your debt to income ratio.   

It might mean that you're not really ready to do what's necessary to get where you want to go.  

Just a thought.  Good luck on your journey. 

I love how lenders are obsessed with DTI when buying a property that makes money.

The renters will be paying the loan, not me. 

But yeah, don't just listen to one bank.  Remember most lenders are dumb.  not only that, they operate under dumb rules setup by dumb people in government.  Keep plugging away. You'll get there. 

@Omar Cantu saving up money for a down payment is never a bad path to take. It may just take you longer to start making any money. Also, a down payment lowers your monthly payments which should allow you to have more cash flow. A $560 dollar vehicle payment is really a lot to pay out each month. I'm sure the insurance on a vehicle that expensive cant be cheap. Maybe you DTI is a lot higher than you think because I'm sure you have a cell phone payment and other necessities such as Netflix or amazon prime. Those are not bad things, just maybe something you haven't accounted for.

Starting a family is an amazing thing but you really should take a step back and think about that for a second. Babies are not cheap and unless you have crazy good insurance (which no one does thanks to ObamaCare) you will be paying 5,10,15 thousand dollars for doctor bills. 

Take a step back and think of the reason you want to do REI. I am sure you can see from many of the blogs, podcasts, and webinars on this website that REI is generally not a get rich quick endeavor.

You can't get rid of your truck now because you're 23 and don't know better. That will come with experience and you'll look back and laugh on what you're saying right now. You want to be rich and have income producing assets? Or do you want a job your entire life? Big boy decisions now, ditch the truck. You want great advice but you're not willing to act on it if it doesn't fit your lifestyle choices.

Get rid of the truck, get a second job, raise your income. Your 23, now is the time to be working your butt off. Start making responsible decisions now and you could be very wealthy at 33. THEN you can buy any truck you want. 

I know this may come off as a broken record, but $560/month truck payment is not the way to financial freedom.  That is the first thing you have to address.  Whether you are more aggressive and pay it off sooner by making additional principal payments or selling it I'd focus on it first.  Save the down payment while you are at it s well.  Then reconsider your real estate approach after you have cleared up the 21% of debt to income you have right now going into the truck.  

I'm not being rude, but in my experience it has been much easier for me to contact my lenders and say all I have is mortgages on properties for debt than to add in additional debts to the equation.  

@Omar Cantu You're spending 21.5% of your monthly income on your truck payment alone.  Assuming $100/mo for insurance that brings it up to 25.4%.  You spend one week every month of your life working just to pay for the privilege of filling your truck with gas, paying for maintenance, and having it lose value every day.

Are you also saving 25% of your income every month for investing?  If not, realize that you want that truck more than you want to invest in real estate.

It is much easier to start out if you have some money to put in; anyone (lender, partner, mentor, etc) will want to see that you have something to lose.  I also recommend buying a 2-4 unit to start out.  Best of luck to you!

@Omar Cantu

Check Podcast 84 with Chad Carson.  He talks about bird dogging, and how that enabled him to learn from mentors while adding some extra $$$ to his bank account when getting started.

https://www.biggerpockets.com/renewsblog/2014/08/2...

Podcast 86 with Cory Binsfield talks about house hacking as Cory's foundation for getting started and growing his portfolio.

https://www.biggerpockets.com/renewsblog/2014/09/0...

Is your truck an asset or liability?  Answer this question, then make the decision an investor would make.  It may be your first and a most valuable lesson on what it means to be an investor.  Don't fall in love with an Asset

@Omar Cantu Everyone else pretty much hit on the truck payment, but here's something else I caught:

I don't want to be in a bind when I start my own family.

I don't work often with people who are purchasing real estate as their primary home, but I have noticed that this a common concern of people under 30 who are first-time home-buyers. That's likely because that's how we experienced our parents and their homes - they bought and stayed put for 20+ years. But today, the average for first time buyers is only 6 years in their first home. 

My advice is to try to let this go and not try to anticipate your future family's needs 10-20 years down the road. In that time, communities can change, jobs change, income changes, personal situations change, and certainly what you think you need now will be different than what you actually need/want in the future. If you can let that conservative approach go, you'll be able to take advantage of opportunities today that will enable you to better meet your family's needs when those come about.

IE if you start with a small duplex, maybe its not best for you, a wife, and 2 kids. But if you don't yet have fully grown kids, it could be enough to get by on and enable you to have a very low housing cost. When the space becomes to small, you either sell or just move and rent out the other side to pay part of your new mortgage. Besides building equity, you'll have substantial savings by not paying rent - that's all cash in the bank to help you save for your next down payment.

Medium logopngMatthew Olszak, Olszak Realty, Inc | [email protected] | 847‑447‑6824 | IL Agent # 471019601

Okay the obvious factor is the truck payment. 560 is a little steep.

I only owe 24k out of 41k at 1.99% interest. I've owned it a year and 2 months. (Which I don't think is that bad)

Of course I don't see it as an asset nor a necessity. But let's say I get rid of the truck I would have to buy something else to drive and let's be reasonable and say 10k for a good vehicle because I do go out of town a lot (being the reason I bought brand new with 7 year bumper to bumper warranty)

Let's say I sell the truck for around 35 and buy another vehicle with the money left over.

Then what? Will I be able to buy a house no problem?

Also I plan on staying with my parents for a few more years so I won't need to house hack just yet. But a duplex or condo is what I'm leaning towards at the moment.

Thanks for the feedback I'm not taking it the wrong way I actually appreciate it. That's why I started this discussion.

just because  you have an fha  loan doesn't mean you'd be in a bind when starting  a family. I'm pretty sure your other half can get an fha loan too

@Omar Cantu

I highly recommend that you read @Scott Trench 's book "Set For Life". It has great advice and tips for young people in your exact situation. If you make a few smart moves (i.e. sacrifices) now, you can really build some serious momentum for your future.

And not to beat a dead horse, but please ditch the truck. You don't realize it now but it's an anchor around your neck and it's drowning you.

Best of luck

Medium great mahogany propertiesIan R., Great Mahogany Properties, LLC | [email protected]

Originally posted by @Russell Noga :

You can't get rid of your truck now because you're 23 and don't know better. That will come with experience and you'll look back and laugh on what you're saying right now. You want to be rich and have income producing assets? Or do you want a job your entire life? Big boy decisions now, ditch the truck. You want great advice but you're not willing to act on it if it doesn't fit your lifestyle choices.

Get rid of the truck, get a second job, raise your income. Your 23, now is the time to be working your butt off. Start making responsible decisions now and you could be very wealthy at 33. THEN you can buy any truck you want. 

 Russell is right.  I Could have had a nicer car than I had when I was young.  I drive a old nissan sentra.  Now I drive a P90D tesla.  If I had a nicer car when i was younger, I wouldn't have had any $ to invest in RE (I already had almost $0, but just enough to kick and bite my way into property).  

Make the sacrifices now so you don't have to worry about money later. 

@Omar Cantu please correct my math if it is wrong but from your post above your truck was 41k when you bought it and now you own 24K and you've only made 14 payments at $560? those numbers don't add up?

@Jessie Nunley I'm guessing there is ~ $9k down in that equation

@Jessie Nunley correct 41k BUT I did put 10k down payment from my previous vehicle and it's technically been 15 months I bought it in march of last year and I have been giving a little extra every other month. Leaving a little over 24k still owed.

So the car payment is killing you buddy. I would sell it and get a beater with no payment, or sell it and have a home and ride the bus. I suggest an fha loan that only requires 3.5% down you can also get the seller to pay some closing costs up to I believe the 3.5% so I say you should have at least 2400 in the bank which if you sell the car odds are you will have that or more! I also suggest going big with your first fha! Go with 3 or 4 units but do your inspections and due diligence before buying. My first deal the seller paid my closing cost and was happy to do so because he was motivated! Good luck!

@Omar Cantu , you say besides the truck you have virtually no bills.  If that's the case you should be able to save up the required down payment in about a year.  Getting rid of the truck would certainly help but if you have as much disposable income as you think the down payment shouldn't be too tough to come up with.

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