Failure to launch, no luck so far

Omar Cantu · 2017-06-19T08:26:46-07:00

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

Michael Lucero

Rental Property Investor · Pasadena, CA · Member since 2016 · 164 posts · 149 votes

9y

I drove a 1987 Camry for 12 years from 2000 - 2012 from age 16-28. It wasn't sexy or anything. I then got rid of it because it wouldn't pass a smog check. I then drove a 3 year old used civic, base model, no power locks etc for 5 years, and recently sold it to take the train to, more of a lifestyle thing rather than to save money. But the point is, you don't deserve the truck just because you can pay for it, to be successful, you should go all in, get rid of that.

1 Reply

Victor S.

WorldWide · Member since 2016 · 1k+ posts · 1k+ votes

9y

Do the hypothetical math: sell the truck for $35k and use $10-11k to buy something else free and clear = $0/mo on a car payment, which frees up $560/mo to invest. Obviously, the "new" car should have maintenance allowance saved up, just in case. Sell the truck while gas prices are still low and there is huge demand for trucks. At the end of the year, you'd have roughly $6 saved up - that is roughly 5% down on $130k property.

1 Reply

Andrew Johnson

Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes

9y

@Omar Cantu So, I'll be the one person to say that I don't care about your truck. But your post begs about 100 follow-up questions. 1.) Is there some specific property that costs $90K, $110K, etc. that you want? 2.) How much savings do you have today? 3.) How fast (on a monthly basis) are you adding to that savings "investment egg"? 4.) Do you have a separate "emergency fund" in case something goes wrong with your job?

You also have to take a realistic look and start ranking your priorities, at the moment it looks like (in order): 1.) truck, 2.) flexibility to buy a personal residence in the future, 3.) buying an investment property. By the way, there's nothing *wrong* with that ranking. Just know that's your ranking and that's your priority. Know it, own it, and plan around it. I'm guessing you have a friend that would rather blow a few thousand on summer trips to Galveston than have a new truck. Everyone has their own ranking system, priorities, etc. so it's really tough for me to value-judge someone else's priority.

There's also nothing that say you have to get into real estate investing today. There's nothing that says your first step can't be buying your own home first. House-hacking is popular, 3.5% down loans are popular, etc. especially here on BiggerPockets. For a lot of people they represent the quickest way to get their foot in the real estate door. Their path doesn't have to be your path. But, odds are, there path is the quickest/shortest/most efficient path. Still, you don't have to take it.

Side note (and this is where I turn into a bit of a jerk), I don't know if there's any mentor that is going to want to work with you given your priority list. If I were to mentor someone, I would want them to be "all in". I'd want them to trade in a truck for a Prius so they could drive for Uber (cost-efficiently) when they aren't working to continue to save for that down payment. I'd want them to be okay house-hacking in a "C" area if that's what it took to get their foot in the door.

But that's me, you can (no doubt) find someone to mentor you. What's tough is expecting them to be "all in" on your mentorship when (investment) real estate is priority #3 in your life. And if you think it's #3 right now. Well, wait until you're married, have a kid, etc. it will be priority #12 before you know it...

All of that said, I still don't care about your truck :-)

11 Reply

Josh Rodgers

Investor · Kansas City, MO · Member since 2015 · 21 posts · 7 votes

9y

Echo other people who stated this.

First things first. Start managing your expenses since that seems to be your biggest issue right now. Scott talks through this in his book - Set for Life but Dave Ramsey has been talking about this well before Scott was even born. So figure out which one you want to follow up on and grab one of their books.

1) manage your big expenses - sell your car and get something cheaper and pay cash for it - you can get a used prius for 5-6k and you'll save money on gas too

2) house hack - i.e. do a 3.6% downpayment (FHA loan) on a duplex. Remember if you're buying a duplex it still needs to be a good deal and work out as a investment property. Scott Trench talks about this on the podcast he was on.

3) stop going to starbucks or whatever place you go to now for a $5 cup of coffee. Stop eating out, learn to cook and be frugal. I used to have a room mate that made 15 bucks an hour but went to star bucks once to twice a day and spent basically 10% of his income there. It was silly, and I see a lot of people do it. So eliminate anything you dont need out of your expenses. You're going to have to knuckle down and make sacrifices to get this done. But if it was easy, everyone would do it.

These three things will eliminate your rent payment, car payment and allow you to save $ to buy the 2nd investment property. The first duplex you buy that you'll live in - will basically eliminate your mortgage payment, insurance and taxes. Selling your car and paying cash on something used that is reliable will save you an additional 6k a year in expenses just on principal/interest.

Doing this for 12-18 months will allow you to buy your 2nd property around the end of that 12-18 months. The 2nd property can be done using the 3.6% down again, so you'll want to refi your first property into a normal 30 YR fixed or 15 YR fixed. So any $ you save, a portion of that needs to be used to paying down the note so you have 20% into the first property you bought by the end of the 12-18 months.

Follow that and you'll be in your 2nd property a year to year and a half from now. It is easy, you're just not sacrificing like you need to. You cant have your cake and eat it too.

1 Reply

Jason Little

Lender · Point Lookout, NY · Member since 2017 · 88 posts · 22 votes

9y

@Omar Cantu people keep telling you to get a 3.5% down FHA loan to finance a duplex. Sorry but that is not an option for you if you are planning to continue to live with your parents. You are REQUIRED to actually occupy the property for at least a year to qualify for those terms. If you don't plan on house hacking and instead want straight investment properties to manage, get FHA and 3.5% out of your head. Or else rethink your strategy.

2 Reply

Mike Sanford

Real Estate Agent · Santa Fe NM · Member since 2017 · 29 posts · 14 votes

9y

I dated a girl who drove a $1500 Subaru from Fairbanks Alaska to San Diego. Got the oil and brake pads changed there and then drove back north.

I just took a $5000 Nissan from Miami to California. You need a $10k car to go out of town?!

In real estate, I'm looking for deals. Same mindset when I'm looking for cars. Let some body else eat the depreciation.

5 Reply

Omar Cantu

OP

Clute, TX · Member since 2016 · 15 posts · 12 votes

9y

Jason Little wow thanks for that vital information. What do you recommend?

0 Reply

Omar Cantu

OP

Clute, TX · Member since 2016 · 15 posts · 12 votes

9y

Okay. This whole thing about the truck has got me thinking, that's just taking the easy way out. Other people do this with other bills totaling more than $560 a month. Let's say I don't sell the truck. And everything remains as is. How do I do it? There has to be a way. If you have a suggestion. Please let me know.

0 Reply

Sarah D.

San Diego, CA · Member since 2015 · 273 posts · 226 votes

9y

@Omar Cantu It's not about the truck, it's about your mindset. You're right in that if you said you had $560 of student loan payments people wouldn't debate it. Let me ask you this- how much do you save every month for your first downpayment? How much do you already have saved up?

If you don't plan to owner occupy (which is a good idea given you can live rent free right now) you'll most likely need at least 20% down plus reserves to get a loan. I know you can have the seller carry, etc but is that feasible in your market? (I honestly don't know)

5 Reply

Jacob Murphy

Contractor · Cincinnati, OH · Member since 2015 · 92 posts · 75 votes

9y

@Omar Cantu I used to struggle with wanting a standard of living I had set for myself in my head. The further I got into this real estate game though, the more I realized financial freedom was much more important than any physical objects I wanted. That mind shift totally changed my life. Now I am all freakin in.

I also live with my parents, I drive a $2000 chevrolet cobalt. I took out all the seats and use it for transportation of tools and materials for rehabs. I also attached a trailer hitch and can tow up to 600 lbs on my 4 x 8 harbor freight trailer. You rarely need a truck for rehabs (despite what people will tell you). If you do, pay for the rental at home depot or pay the small fee to have it delivered.

The blog that really challenged me to grow my frugality muscle was mrmoneymustache.com. Read that blog and watch your life transform!

4 Reply

Joe J.

Investor · Los Angeles, CA · Member since 2017 · 95 posts · 52 votes

9y

@Omar Cantu

I agree with @Sarah D. Truck aside, you will most likely have to try and save about 20%+ of the purchase price to get an investment loan going the traditional route if you are not going to be living in the property.

It is ultimately your decision to keep the truck and it seems you have already made up your mind. I completely agree that your ability to get started in real estate investing would be substantially easier getting rid of it but ultimately you make your own decisions. Everyone's painted a pretty clear picture on the benefit of getting a more economical car. As long as you are aware of what keeping the truck will potentially cost you in the long run (from an investment perspective), it's up to you what you want to prioritize. Best of luck!

0 Reply

Jieh Larson

Investor · Houston, TX · Member since 2016 · 80 posts · 38 votes

9y

Keep on searching for a bank that'll take you, keep on saving and you'll get that down payment. Houses are cheap down there (at least compared to Houston) and as long as you purchase with the house as an investment property in mind you should be able to do alright. Insurance is a killer on the gulf coast, if you're looking for purely an investment property you may need to look further inland. Make sure to check your flood maps.

I'm guessing you work at the port or the refineries. You'll get **** for the Prius or whatever discount car you end up with but it'll be worth it. I'm in the oil field and drive a crappy but reliable little no frills car but have steadily been building my side hustle. That payment isn't worth it.

You don't want to put your future family in a bind then put your focus on what you need to do now. I was working offshore half the year, walking to the office when I was onshore and living in a $400/month apartment stacking money because I knew I'd be supporting a family some day. Got the family now and we're in a much much easier position because of it.

5 Reply

Andrey Y.

Specialist · Honolulu, HI · Member since 2014 · 1k+ posts · 1k+ votes

9y

Originally posted by @Karen O.:

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.

100% on point. I earn 5-10X what he does and I STILL can't afford to buy a $600/mo. truck.

OP - if you are afraid to fail, you will likely never succeed.

1 Reply

Linda WeygantPro Member

Investor and CPA · Arvada, CO · Member since 2015 · 2k+ posts · 3k+ votes

9y

I'm just gonna point out one little thing.

I have mortgage payments that are lower than the truck payment. Essentially, you are using up a mortgage payment on that truck.

Podcast Guest on Show #244

7 Reply

Travis Dawson

Investor · Moscow, ID · Member since 2017 · 107 posts · 76 votes

9y

Here is the thing. You said in your first post that your Debt to Income ratio is bad. Unless that is fixed you won't get anywhere with a bank, FHA or conventional.

If you are deadset on keeping the truck and decreasing your debt, your only option to get bank financing is to find a way to increase your income. Get a raise, move to a better job, take a second job, etc.

1 Reply

Jonathan Jewell

Investor · Bensalem, PA · Member since 2011 · 146 posts · 93 votes

9y

Ok, maybe I missed something here, but there are some very obvious solutions around this guys problem of not being able to start in RE investing. He could have a place in days.

Oh wait I get it.

Is it so obvious that we are hoping he realizes it for himself. hmmmm Ok, I can support that. That should get the old brain cells firing if he truly wants it. @Omar Think it out man.

0 Reply

Aaron Gaffney

Investor · Santa Barbara, CA · Member since 2016 · 75 posts · 35 votes

9y

read Set for Life by @Scott Trench (he works here at BP). Loads of invaluable advice on many aspects of life and finance to get investing for young people. And work your *** off while you're young and healthy!... that is one thing you're not guaranteed. Over 500 for a truck payment is insane, you don't need that. Even if you're self employed and need a truck for your income, get a work truck. 150 or 200 for a real decent used vehicle should cover it.

Best of luck to ya! Don't give up, ever.

2 Reply

Aaron Gaffney

Investor · Santa Barbara, CA · Member since 2016 · 75 posts · 35 votes

9y

Originally posted by @Jacob Murphy:

@Omar Cantu I used to struggle with wanting a standard of living I had set for myself in my head. The further I got into this real estate game though, the more I realized financial freedom was much more important than any physical objects I wanted. That mind shift totally changed my life. Now I am all freakin in.

I also live with my parents, I drive a $2000 chevrolet cobalt. I took out all the seats and use it for transportation of tools and materials for rehabs. I also attached a trailer hitch and can tow up to 600 lbs on my 4 x 8 harbor freight trailer. You rarely need a truck for rehabs (despite what people will tell you). If you do, pay for the rental at home depot or pay the small fee to have it delivered.

The blog that really challenged me to grow my frugality muscle was mrmoneymustache.com. Read that blog and watch your life transform!

Mr Money Moustache is AWESOME!!!!

1 Reply

Andrew Johnson

Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes

9y

@Omar Cantu Take the truck out of it, you're kind of ignoring questions around your plan to save financials, etc. As focused as others (including me are on your truck) you're ignoring everything *but* the truck comments. I don't think anyone here knows if you have $1,000 in the bank right now or $10,000. We just know it's not enough for the down payment. We don't know if you're saving $10/month to the investment fund or $1,000/month.

If you're question is "How do I make a $20,000 down payment materialize out of thin air while changing no variables in my life?" then state that as the question. You'll get some fun answers. Otherwise, talk about the other financial parameters. Do you have zero other expenses, no credit card bills, eat mom's pasta? Again, nothing wrong with that but according to your numbers you should be saving $2,000/month. Unless real estate is a newfound idea for you then that $2,000/month in savings should be piling up pretty quickly. Something tells me there's more variables in that equation.

What you can't do (well, you can, but it won't be productive) is say that you're willing to change nothing in your life (truck, doing an owner-occupied FHA loan, etc.) but want to the same result. If that's the case, we're back to hoping a $20,000 down payment will appear from the ether!

4 Reply

Jason Turo

Investor · Norman, OK · Member since 2017 · 101 posts · 34 votes

9y

Wow, I haven't counted, but I think I read "get rid of the truck" a few times. Makes me want to buy a truck.

1 Reply

Bola A.

Rental Property Investor · Houston, TX · Member since 2014 · 146 posts · 35 votes

9y

I just want to tell you that I am proud of you, At 23 you already looking at how to create wealthy. Creating wealth will require you to be passionate about money and budget. You can do all things with determination. Good luck.

2 Reply

Andrew Johnson

Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes

9y

@Jason Turo I'm kinda hoping he says that needs the truck to pull the boat he just bought. Wait, wait...that's mean. Can't knock a young potential investor for trying to wedge their foot into REI. But we seriously do need to see a picture of this truck...

5 Reply

Jonathan Jewell

Investor · Bensalem, PA · Member since 2011 · 146 posts · 93 votes

9y

@Andrey Y. "

"100% on point. I earn 5-10X what he does and I STILL can't afford to buy a $600/mo. truck."

Right there with ya! Nor would I want a 600 payment!!! Free and Clear here. 235,863 mi Regular maint and my baby is still running strong all these years. Exterior a little battered and lil bruised, and some extra paint that shouldn't be there lol.

But thats ok, I'm not trying to impress anyone, and that's more money in the bank for reinvesting

11 Reply

Account Closed

Saint George, UT · Member since 2017 · 24 posts · 15 votes

9y

$41k plus interest going into a vehicle that is not a necessity...when is a vehicle ever a necessity at that price? You are focused on liabilities and not growing assets. There goes your money for REI or any investment. $10k sounds better for a vehicle and it will probably get you around just fine. I haven't had a car payment for a long time and my vehicles are still good and will be for a while.

2 Reply

Rousner E.

Investor · Millington, TN · Member since 2016 · 45 posts · 40 votes

9y

Hey so I just got myself out of a situation similar to yours. First off, don't feel bad stay positive. It's sad but the truth is our education system never focuses on personal finance so you have to learn as you go or teach yourself. So the first thing I did was sold my car. Now I drive a 2006 chevy trailblazer with 185,000 miles that I bought for 3500. It's gets me from point a to point b and it's dependable so I won't complain. The car was my only debt so getting rid of it made a world of difference. Then I saved up a few months worth of mortgage payments. Then I waited one month and kept my expenses to a minimal, cook at home, don't go shopping, cut the cable bill, don't buy any gifts, etc. (I'll explain in a few), then I applied for a pre approval. When I applied my debt to income was zero, my credit score was 760+ and because the bank only wanted one months worth of bank statements and that was the month where I spent very little money, it looked like I kept my expenses low. Then I went and got a VA loan(I'm in the military) but it could also work with a FHA loan. Now that I have the first home, I have to live in it for a year, but in a year I will rent it out and purchase another one with a conventional loan. I am continuing what I did to get the house, I keep expenses low and I treat the house like a rental, I'm not putting any thing on the wall to minimize expenses at "turnover", I pay myself 950 each month(what i want it to rent for) and with that money I put aside for repairs, vacancy, property management,etc. and I pay the mortgage with it. Any extra money I have I pay extra towards the principal in hopes that I will build some equity in the near future. Just my opinion and how I did it, I hope it helps. Also read Dave Ramsey money makeover, just to get a glimpse of how drastic a change you have to make, but once you get used to it it's easier than you would think.

12 Reply

Failure to launch, no luck so far

Failure to launch, no luck so far

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