Clute, TX · Member since 2016 · 15 posts · 12 votes
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
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.
Rental Property Investor · San Diego, CA · Member since 2016 · 73 posts · 55 votes
9y
The problem is not your desire to buy rental property. The problem is that you're placing more importance on a depreciating liability than an appreciating asset. It sounds like a mental shift is underlying and necessary. The one and only time I've ever lost money on a rental property was when I bought too early in my career and was stretched far too thin on cash. I'm making more money than I ever though possible right now and am driving a 2004 Ford F-150. It gets from A to B safely and reliably. Read Robert Kiyosaki where he talks about buying an asset and letting it pay for your liabilities. I hate seeing people get so close to changing their lives but then getting caught in the rat race of every day life. Decide what is more important to you and your family--wealth, or things?
2nd I totally salute and applaud your approach on your first investment. You sir are doing everything right and have the RE mindset. Thanks for posting how you started out. You are going places!
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.
Real Estate Entrepreneur · Mid West, East Coast · Member since 2015 · 3k+ posts · 1k+ votes
9y
@Omar Cantu Find someone to partner with who has good credit and low DTI. Keep the car as is and once it's paid off, don't buy another depreciating asset like that again. Good lesson for you but you have plenty of time to rebound.
Investor · Norman, OK · Member since 2017 · 101 posts · 34 votes
9y
I am betting Omar is a smart dude, and I think he's learned from all the knowledge everyone has bestowed upon him about the truck and he's got it. Omar, you're doing the right thing by asking questions and seeking advice. Never quit!
Investor · Long Beach, CA · Member since 2016 · 75 posts · 24 votes
9y
@Omar Cantu First of all, I want to commend you for being interested in REI at such a young age. Ten years from now you'll look back and be glad you started so young. With that said, consider that you make $2,600/mo and live at home, meaning you can save a good portion of your paycheck since you don't pay rent and probably get a break on food cost too. Like everyone here already mentioned, and you acknowledged, the truck needs to go. Put that 500/mo aside for 1 year, in addition to the money you save by living at home, and 12 months from now, you'll have 10k saved. Then try to get pre-approved for a loan, especially if you can get an FHA on a duplex. 100k duplex at 3.5%, house-hacked. That would be your best bet. A year later you can move out, buy something else, rent both units in the duplex, and you'll probably be able to buy the truck again. Except this time, the tenants will be paying the car note. But I bet in two years you'll realize how frivolous the truck will be and you'd rather buy another property. And another. And another. Make the sacrifice now, not just for yourself and your current situation, but to make it easier on your family in the future if you're able to cash flow from multiple properties and provide for them.
Attorney · Richmond, VA · Member since 2015 · 17 posts · 33 votes
9y
House hack. This is overly simplified, but here is the gist. Find an ugly three bedroom house for cheap for sale by HUD, Fannie Mae or Freddie Mac. Get great ARV numbers/comps etc from an agent who knows the investment/flip business. Many don't. Make offer during the owner-occupant period. You can get properties a lot cheaper as an owner-occupant, before investors bid up the price. Get a government-backed first-time homebuyers mortgage. Live in the home for two years and learn the hard way about fixing it up. Hire help where needed but learn how to do anything you can. Rent out rooms to cover the mortgage if you feel like it. Sell after two years of living there as your primary residence, completely tax-free. Roll all of that money into your next purchase and do it again and again until you have enough capital to live elsewhere and fix up a different property. You can only use the tax provision once every five years, though. I house-hacked three times until I had enough to buy a home and an investment property. Not quick or easy, but it worked and I enjoyed it.
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
9y
I didn't read all of this just some.
The 560 a month truck payment what is the interest rate? If your credit score is average then maybe you can work on getting a higher score to do a refinance and save some monthly payment there.
2,600 a month income is really low but not bad for your age.
You need to find a way to increase your income. Take away taxes and living expenses and you have next to nothing almost in savings.
I like nice things as well but live within my means. I have a new vehicle because I drove an old one for many years. I only live 10 minutes from my office building I own so only put about 5,000 miles a year on it.
Big thing is go work for an investment company. Show the owner you will sweep floors, get coffee, etc. to learn the business. When they see fire in your belly and not excuses then they might just be the bank on your first deal to get you going which could be easier to qualify for than tradiitional routes. They have to see dedication, maturity, and sacrifice to think of taking a chance on someone starting out.
Flipper/Rehabber · Edmond, OK · Member since 2016 · 209 posts · 107 votes
9y
Like many others have mentioned. The truck needs to go! 1/4th of your income is insane for an automobile. I would encourage you to pay cash for a cheap Honda and use the access money to save for a down payment.
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.
Highly disagree with #3. When I started getting starbucks every day, and eating out once or twice per day, my income kept doubling every year. Ironically, the caffiene and good food is fuel so you can worry about making deals, not cooking pasta and washing dishes.
Then I added 2-3 international trips per year, same effect. I think the reason is because you realize WHY you are investing, and what success can mean for you. If your lifestyle gets worse, why are you spending the best years of your life diminishing your lifestyle? It sounds eerily similar to an IRA or 401k.. if you want to defer quality of life, you have no business investing in real estate. Try mutual funds.
Real Estate Investor · Tempe, AZ · Member since 2012 · 874 posts · 648 votes
9y
Omar Cantu
Refinance the truck. You might have to go up to a 2.49% interest rate because it's a used vehicle. Try Alliant Credit Union or, if you qualify, one of the military-affiliated CUs.
$24K @ 2.49% for 6 years is $360 a month. That's $200 better than what you have now, but of course you are in debt for a longer period of time.
If you have great credit and no other monthly payments, you should be able to borrow at 45% DTI. If you can't, ask the lender why, and/or keep dialing. Once you have your paperwork in a file folder, it doesn't take much to talk to the next lender.
45% of your $2600/mo pay = $1,170. Back out the $360 for your truck and you can have $810 left for housing debt.
We bought our first home for $120,000 with 5% down and a 4.375% mortgage. The payment was $728 including escrow. You would have qualified for that, but would have needed $6,000 plus closing costs.
Can you take some cash out of your truck when you refinance, since you've paid it down so quickly? Get your calculator - or Excel, or a phone app - out and start running numbers. Taking cash out will increase your available funds for down payment and closing costs, but also increase your monthly payment, which decreases the amount of house you can buy.
You are looking at sub-$100K houses. I don't know what taxes are like in Texas, but you appear to be close, if your credit is indeed good (720+) and your expenses are low.
You don't have to use FHA. Consider the costs of the upfront mortgage insurance premium (MIP) and the non-removeable mortgage insurance you will pay for the life of the loan. The difference between the down payments (3.5% FHA, 5% conventional) has been negated by the upfront MIP. But the numbers have changed since I last looked; check with your lender.
You don't have to house hack. You can buy a perfectly fine single family home or duplex, as you don't have money to renovate anyway. I suggest the duplex, since you can rent the other unit out to cover much of your mortgage and, if your family situation dictates that you move - after one year, which is not long - you can now rent out two units.
Here's where it gets good....get that duplex, rent out one side for a two years (again, not a long time), then get a someone on a lease for the unit you were living in and go buy another property. You will find out that the mortgage on your duplex is likely negated when you go to buy your next place, because discounted rent should be greater than monthly PITI, and should actually help your DTI instead of hurt it. This might be a bit much to ponder now, but it's quite magical once it happens.
Need a down payment for the next house? You would have been saving your rental income, right? And maybe he truck could be refinanced again. And you would have been saving as much of your monthly net pay as possible as well, right?
This doesn't take "luck" and this doesn't have to take a wholesale life change to get started. Just.get.started. I've told you how above, and I assure you it works, because it's exactly what we did ourselves.
Property Manager · De Soto, KS · Member since 2017 · 58 posts · 30 votes
9y
My very first thought is that you should switch to a vehicle with a lower payment or one you can pay for outright. I, previously, worked as a loan originator and constantly talked to people who could not qualify because of high car payments.
Also, where do you live now? If you bought with FHA or USDA loan and lives there you could house hack. No reason you can't refinance into a different loan type in a few years. Doing so will leave you able to get a low down payment home for yourself when you move on to a new personal residence.
Make some financial changes so you can get into your first deal. The trade off of launching a life long investing habit is so worth it!
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.
I guarantee theres a way, and it involves everything thats already been said. You need to set priorities, make a gameplan, then execute that gameplan with such intensity that theres no way not to succeed.
Dallas, TX · Member since 2016 · 1k+ posts · 745 votes
9y
Omar Cantu the decision comes down to bow bad do you want it. If you want wealth thru real estate you get rid of the truck. If you don't then keep the toy.
My wife and i's vehicles combined are worth under $10k, both, knock on wood run fine. Hers is a 2004 mine a 2007. We have sacrificed with no car payments in order to build wealth in real estate
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?
Kinda. It will fix your DTI pretty much instantly. You could probably qualify for a loan even without counting any sort of investment income.
I saw you want to do fix and flips. In which case you could deal with a short term lender. They will not be so interested in your DTI. But anyone who sees 2600/month gross and 560 a month in car payments is going to question the financial decisions you will make if they lend you money.
Here is a good article to read regarding vehicles:
Clute, TX · Member since 2016 · 15 posts · 12 votes
9y
Thanks to everyone for the feedback.
Obviously the truck was not necessary but like I said I'm only human. I'm not a quitter nor will I take the easy way out I just have to deal with the cards I'm dealt. I have given it some thought and will continue but as of now the truck is going to stay. I have about 7k put away I might get a part time job with a real estate firm or something like that on the weekends to save up more capital and soon probably look for another job with better pay in my industry.
Shawn Ackerman thanks for that bud I think that's what I am going to do in the meantime because I was planning on it being my last vehicle for many many years.
Also I was planning on getting my real estate license soon not really to be an agent just to have more overall knowledge. Anybody have experience with this?
Real Estate Agent · San Diego, CA · Member since 2015 · 293 posts · 109 votes
9y
Omar Cantu so instead of taking "the easy way" out and getting rid of the truck, you want to take the hard way and keep it? Haven't you ever heard the saying about taking the path of least resistance?
I was going to make a statement about getting your priorities straight, but that would be presumptuous of me. You have your priorities straight already. For your current desires and lifestyle, the truck is most important, and there's nothing wrong with that. However, once you realize the truck is a massive liability, you will be having the second light bulb moment of your journey - the first being the thought that you want to get into REI.
When you realize that "things" are simply assets or liabilities it will be a huge mindset shift for you. Another shift is also to stop comparing your situation to anyone else's situation in regards to the "other people have more than $560 in expenses every month" statement. True, other people do, but you're not other people. There are people who can afford to have $50k+/mo in liabilities, yet are still able to do what you want to do. So, by that logic, you should be able to spend any amount of money every month and still be able to invest, right? Because other people are doing it....? Sadly, no. Everyone's situation is unique to them. You have to do you. Simple as that.
I hope that second light bulb goes off for you - and I hope someday you come full circle and are on here giving advice to a new investor in a similar situation as you find yourself in right now.
Investor · Brandon, FL · Member since 2017 · 178 posts · 67 votes
9y
Most lenders will not lend on an investment property without 20% down. You can get away with less if it will be owner occupied. You could also look for an investment partner, someone that can put the money up in exchange for half the profit. Even they would want some "skin in the game."
Save up for the down payment and make your money multiply.
North Las Vegas, NV · Member since 2015 · 77 posts · 27 votes
9y
@Omar Cantu take it from someone whos just starting out and is your age and can relate! im 25 i WAS making 3200 a month and my girl is making 4000 a month. and still live at home now for the last year. ..but...we were young and were making decent money. we had a rent payment of 1400 a month, my girl had a 2014 c300 mercedes 340 a month,
i owned a 2010 bmw 135i that i paid 29k for with 11k miles. i poured money into the thing it had jb4 50%e85 downpipes intercoolers full exhaust meth injection etc! Best 500hp of my life...BUT i was paying 580 a month! AND 170 FOR FULL COVERAGE INSURANCE ....our priorities were all wrong. over the last 3 years we made 90k each year and never made an investment we have nothing to show for it matter of fact we were always broke and worried about bills. so we decided to move back home, traded the Benz for a kia forte for 120 a month and cut the rent out of our life. i kept the 700 a month debt of the beemer . 6 months ago i lost my job..5 months ago i crashed it i cried for a few hours and told myself oh well we will go buy a new one in the morning. then by morning i realized my insurance will pay the car off and im now debt free! crashing was a blessing in disguise. my girl said no to a new car as months went by ive realized how stupid i was and over the course of owning the car i coughed up 15k on it. so i spent a fha downpayment for a 4plex on a car i no longer have. i told myself never again... until its something i really want and i CAN TRULY afford it. especially now living off of my gf income only, we could have never afforded any of that stuff and would be stuck in a 6ft hole.
my point here is life changes and it changes fast. i loved my car as much as you love your truck but have you considered what if you lose your job? and its hard to give up something you worked so hard for ... so just have some one crash it... lol jk but seriously losing the car was the best thing that ever happened it made me open my eyes to what i truly want to accomplish and thats owning a twin turbo gallardo or a GTR by age 30 lol. and spending all my money on depreciating assets now isnt going to get me there.
in the last 5 months ive got my real estate license and im now with century 21 americana and WITHOUT ME WORKING just my girls income we have managed to save up 6k ... aiming to buy a fourplex for xmas! if not then tax season for sure lol.
GOOD LUCK MAN like everyone else i say get Rid of the truck now. you said 44k @1.99% and you owe 24k sounds like you can sell it for at least 36k and use the cash you get back for a downpayment..... the answer to your problem is in front of your face you already have a big downpayment but do you really want to invest as bad as you say you do?
WISH YOU THE BEST
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
9y
Chris Hogan said it best regarding vehicles- "I had an SUV when I was young. It costed me $1 million and 8 extra years of working. Now I don't even know where that car is, but I sure wish I had my 8 years of freedom back. The $1M would be nice, too!"
The payments, if invested, would have increased his worth by $1M at retirement. Same here.
Anyway- do what ya want. I'm glad there are young people encouraging you here. Old and grumpy's like me would just write you off and throw up. I don't even rent to folks who roll up in a big payment.
Rental Property Investor · Los Angeles, CA · Member since 2016 · 62 posts · 18 votes
9y
Look into sites like swapalease.com and leasetrader.com. If you're serious about real estate investing and setting a solid financial future for yourself, that car has to go. And I presume $2,600 p/ month is your pre-tax income? Doesn't matter that you have no other expenses. That's money that can be saved and ultimately used towards a down payment.
Rental Property Investor · Naugatuck, CT · Member since 2016 · 42 posts · 20 votes
9y
Is anyone else wondering what kind of truck it is? haha
Moral of the story here Omar is, save your money and make sacrifices now so you can cash out later! Real estate investing is all about looking at the bigger picture.
