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.
Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
9y
Poor Omar, just reading how he would look at selling his truck as the "easy way out" tells me all I need to know. At this point it's not even about the truck, it's about the decision making process and perspective you have on the value in REI. In his mind selling the truck is an "easy way out", in the mind of investors ditching the truck is a:
1.) "prudent financial decision"
2.) "way to accelerate your ability to get your first property"
3.) "way to easily improve your DTI for bank financing"
4.) "way to increase cash-on-hand and your ability to save each month"
I would hazard to guess that 99% of the people on the forums are looking for ways to accelerate acquiring their first piece of real estate, second piece, move from SFRs to commercial multifamily, etc. The 99% would look at selling the truck as an *opportunity* to reach their goal faster. And, devils advocate, let's say it is the "easy way out". How the heck are you going to make the HARD choices of you can't make the easy ones!
So, my advice for Omar, print this out and do one of two things:
1.) Tape this entire forum post up on your bedroom wall. Have it stare you in the face that you're choosing your truck over accelerating your real estate goals. Tape it on the mirror to read while you shave in the morning. Make it so that you can't get away from it. Say out loud, every single morning: "My $560 truck payment is a wise financial decision!"
2.) Print this out and put it in a sealed envelope. Write on the envelope: "OPEN IN JUNE 2027". In 10 years you'll be 33, have a different perspective, and reflect on the choices you made at 23. I guarantee that self-reflection will serve you well at 33 and help you for the rest of your life. Either that or you'll have a 6 car garage at that point full of trucks that cost you $80K each. Who knows.
I'm probably just old, miserly, and condescending. Possibly jealous. I want that truck!
Investor · Richmond, VA · Member since 2016 · 1k+ posts · 2k+ votes
9y
Love @Andrew Johnson's perspective, completely spot on! If that's what's holding your back, why not get it out of the way? I must say, I'm absolutely jealous of your truck.. we have a 87' truck that we use for properties.
Until you get angry at the situation, and the fact it's holing you back, this thread is pointless. If a person said "no, I won't let you do this" you'd probably tell them off, and push them out of the way.. why would you do that with a brand new truck?
It's a mentality and a maturity thing, figuring out how to get what you want.
On another note, - how about Ubering to pay for it?
Mortgage Broker · CA · Member since 2014 · 1k+ posts · 642 votes
9y
@Omar Cantu As others have said, yes the $560 payment is eating up a big portion of your allowable debt in the debt-to-income ratio. That's $560 of your monthly income that can't be used for a mortgage, and instead is being allocated toward a vehicle. For an FHA loan with mortgage insurance, taxes and property insurance, that translates to roughly $75,000 loan amount that you're missing out on (depending on your local property taxes).
One alternative to selling the truck is to refinance the truck to get a lower payment. You could spread it out over a longer term. The lower your payment, the more house you can qualify for.
One way to boost the income side of your DTI is to buy a multi-unit and use the rental income to help qualify.
Real Estate Broker · Apopka, FL · Member since 2017 · 492 posts · 528 votes
9y
I own a business in which I actually NEED half ton trucks (a mobile detailing business I founded in 2007). My fiance and I each own newer half ton GM trucks. Mine's a 14 Silverado and hers is a 15 Sierra and both have beds that are thoroughly abused, scuffed, and scraped inside. We each carry 1250 lbs of water and equipment in our trucks on a daily basis to make a living. We only bought our current trucks after thoroughly killing a paid off 04 Colorado and a paid off 04 Envoy which pulled a trailer. Both vehicles had transmissions blow out from overworking. Before my Colorado, I had two different used SUVs that I towed a trailer with and killed before their "time". Our $500 truck payments are holding us back from real estate investment at the moment and we are working to pay them off early to make REI a possibility. But those same truck payments are the lifeblood of our ability to operate our current business, support our family, and service customers for years to come (as well as making the strong income that will allow for investment!). I've only ever sold vehicles when they are worth less than $4k, well over 100k miles, and the transmissions fail ($3k+ repair). At 24000+ miles per year driven, the inflated price of used trucks, and the fact that we use them for business AND kid hauling/family duty, buying used didn't make business sense after running numbers on a long term cost/year basis: we would simply kill higher mileage used trucks before they made up for their cost.... and I know since I killed three used vehicles running my business before, kept good records, and examined what they truly cost me to keep on the road including diminished value when they were traded in broken. Even still, both new trucks are V6 doublecab 2wd work trucks and we are hoping they last beyond 250k miles. My truck is similar to yours @Omar Cantu but with way less options. With year end discounts and zero options, they were each $29k out the door, all included, the cheapest possible price on a new vehicle that could carry kids and work equipment. I would have loved a Z71 4x4 crewcab, but that extra $13k wouldn't profit me any more so I never even considered it. In less than three years I have nearly 60k miles on mine, I'm 20k miles into my second set of tires, and I've been rear ended and had it repaired twice. My fiance has 33k miles on her 15, and has luckily avoided idiots running into her! The two trucks are what allow us to bring in a six figure gross income and those truck payments are 75%+ of our operating expenses, when they are paid off our business expenses drop to nearly nothing. We drive them as a business decision, not a status symbol. They are decked out with 17" steel wheels, manual cloth seats, rubber floors, and reliability. If I didn't drive the mileage I do or haul the weight I do, I'd be in the cheapest used econo car I could find. We don't own "personal vehicles", we drive our branded work trucks everyday. So coming from someone who actually NEEDS to have a half ton truck to make a living and still hates the payment, be happy that you don't need it. I look forward to the day (soon) when both trucks are paid off with lots of life left in them and we lower our DTI to make investing possible. We are saving and preparing to dive into investment when that point comes...its all in our plans. Keeping our business running and profiting is a priority for now and I hope to replace the income with REI down the road, but making a living with the trucks is the only reason my truck payment ranks higher than investing as a priority. Unless you tow or haul for profit, you seriously do not need your truck or it's payment. I'm 31, have two kids, three step kids, a house with about 60k in equity, a costly divorce behind me, a super cheap beach wedding ahead of me, and still make sure that every single financial decision is thoroughly planned. You're young, single, and have options. Driving a $41k truck before even owning a primary or investment property is a choice you made. If it's a choice you want to stick by, pay that truck off as quickly as you can and keep it forever. If you want to invest sooner, sell it now and get a 10 year old Ranger or something.
Investor · Dallas, TX · Member since 2016 · 135 posts · 62 votes
9y
@Omar Cantu - One good thing about having the truck payment for 15 months and then paying it off is that (assuming you have been on time), your credit score will go up significantly when you pay it off. That will also make qualifying for a loan easier.
You mentioned a $10K car. Don't be afraid to get something MUCH cheaper. I drove a $1500 car to/from work for several years with no maintenance except for oil changes. 40K miles on it before the water pump blew and the engine fried. Best cost per mile of anything I have ever driven. Reliable too.
Bronx, NY · Member since 2017 · 19 posts · 2 votes
9y
Omar Cantu
I wish someone would have taught me how to be wise with my money when I joined the military 8 yrs ago. Now that I want to invest in real estate I'm like wow, instead of buying my first car for $20,000 and then trading it in for a $28,000 car like 4 years late when it was almost paid off, I would've bought a freakin hooptie and lived in the hood somewhere in San Diego. Now I'm like duh that's what I was supposed to do. I owe 8,000 on my current car so it's pointless to sell at this point but I'm going to shack up with some relatives for the next 6 months and with my monthly income, I'm gonna be able to save at least on top of what I already have saved. I wish I would've done this sooner but I'm willing to do whatever it takes because I don't wanna work for someone for the rest of my life. The thought of future financial freedom makes my current lack of freedom all worth it. Hope this helps you make a wise decision. Good luck!
New Haven, CT · Member since 2016 · 90 posts · 99 votes
9y
"I make about $2600 a month and have only my truck payment of $560 a month"
More than 20% of your income goes towards your car each month, and that does what for you? You know the average multi-millionaire hasn't bought a car worth more than 40k in their entire life? Let that sink in for a minute. Also, why would you put extra money towards a car payment that depreciates?
I was going to write a lot more to help, but you said you don't want to sell your car which means you're beyond helping in my book. sorry to say.
Rental Property Investor · Rutherford, NJ · Member since 2016 · 116 posts · 91 votes
9y
Welcome to BP
I'm sure this has been mentioned already but you need to read Set for Life, written by @Scott Trench
Then move on to the Brandon Turner book about buying RE for no or low money down.
You've got the interest, creativity and stubbornness parts down. Those are the hard parts to overcome. Now educate yourself on the how. Read, plan, save, invest, repeat! Congrats on getting started with this post.
@Omar Cantu
Hey man. I'm 25 years old now and was in a similar situation as you when I was 21. I was fortunate to land a job providing me 4k a month. what did I do with all that money at 21 years old with literally no debt? I BOUGHT a fancy car. got a girlfriend. and rented out an apt. BIGGEST mistake of my life. over 2 years I spent over 20k in rent ( down payment on a property right there) and at 400 a month on a car I was literally throwing away money dude. coming from someone who is relatively close to your,age and what seems to be,similar life path... LET GO OF THE CAR. the BEST thing i,have done is sold my 2008 Mercedes s550. got rid of a non like minded goal oriented girlfriend
@Omar Cantu
whoops, submitted my reply before I could finish.
.... dropped my girlfriend. moved back in with family. bought myself a 9k cheap 2006 honda cash, cut my expenses all around. did my research and I began emulating and following those that took the,path I am choosing to take towards financial freedom. find yourself a mentor that will educate you in the process of realizing your dream. no matter what,the cost, the best investment you will EVER A MAKE is investing in yourself. educate yourself. let go of the truck NOW so you can buy in cash the rolls Royce LATER. my 2 cents for you in,reference to where to begin, try wholesaling real,estate. research it. investigate. learn. find someone who's been there. done that. and go forward. hope this helps. again, I'm you're age man focusing on the,same goal. if I can do it and anyone else can do it, you MOST definitely can do it.
New York City, NY · Member since 2013 · 114 posts · 20 votes
9y
Man oh man do I want to contribute to this thread my mistakes. Studying for a Florida license at the moment. I will continue to follow this thread and gather my thoughts until I'm ready.
I own a business in which I actually NEED half ton trucks (a mobile detailing business I founded in 2007). My fiance and I each own newer half ton GM trucks. Mine's a 14 Silverado and hers is a 15 Sierra and both have beds that are thoroughly abused, scuffed, and scraped inside. We each carry 1250 lbs of water and equipment in our trucks on a daily basis to make a living. We only bought our current trucks after thoroughly killing a paid off 04 Colorado and a paid off 04 Envoy which pulled a trailer. Both vehicles had transmissions blow out from overworking. Before my Colorado, I had two different used SUVs that I towed a trailer with and killed before their "time". Our $500 truck payments are holding us back from real estate investment at the moment and we are working to pay them off early to make REI a possibility. But those same truck payments are the lifeblood of our ability to operate our current business, support our family, and service customers for years to come (as well as making the strong income that will allow for investment!). I've only ever sold vehicles when they are worth less than $4k, well over 100k miles, and the transmissions fail ($3k+ repair). At 24000+ miles per year driven, the inflated price of used trucks, and the fact that we use them for business AND kid hauling/family duty, buying used didn't make business sense after running numbers on a long term cost/year basis: we would simply kill higher mileage used trucks before they made up for their cost.... and I know since I killed three used vehicles running my business before, kept good records, and examined what they truly cost me to keep on the road including diminished value when they were traded in broken. Even still, both new trucks are V6 doublecab 2wd work trucks and we are hoping they last beyond 250k miles. My truck is similar to yours @Omar Cantu but with way less options. With year end discounts and zero options, they were each $29k out the door, all included, the cheapest possible price on a new vehicle that could carry kids and work equipment. I would have loved a Z71 4x4 crewcab, but that extra $13k wouldn't profit me any more so I never even considered it. In less than three years I have nearly 60k miles on mine, I'm 20k miles into my second set of tires, and I've been rear ended and had it repaired twice. My fiance has 33k miles on her 15, and has luckily avoided idiots running into her! The two trucks are what allow us to bring in a six figure gross income and those truck payments are 75%+ of our operating expenses, when they are paid off our business expenses drop to nearly nothing. We drive them as a business decision, not a status symbol. They are decked out with 17" steel wheels, manual cloth seats, rubber floors, and reliability. If I didn't drive the mileage I do or haul the weight I do, I'd be in the cheapest used econo car I could find. We don't own "personal vehicles", we drive our branded work trucks everyday. So coming from someone who actually NEEDS to have a half ton truck to make a living and still hates the payment, be happy that you don't need it. I look forward to the day (soon) when both trucks are paid off with lots of life left in them and we lower our DTI to make investing possible. We are saving and preparing to dive into investment when that point comes...its all in our plans. Keeping our business running and profiting is a priority for now and I hope to replace the income with REI down the road, but making a living with the trucks is the only reason my truck payment ranks higher than investing as a priority. Unless you tow or haul for profit, you seriously do not need your truck or it's payment. I'm 31, have two kids, three step kids, a house with about 60k in equity, a costly divorce behind me, a super cheap beach wedding ahead of me, and still make sure that every single financial decision is thoroughly planned. You're young, single, and have options. Driving a $41k truck before even owning a primary or investment property is a choice you made. If it's a choice you want to stick by, pay that truck off as quickly as you can and keep it forever. If you want to invest sooner, sell it now and get a 10 year old Ranger or something.
Rental Property Investor · NV · Member since 2014 · 241 posts · 85 votes
9y
@Omar Cantu Where there is a will there is a way. Business, Real Estate, any of it, is not at all easy. Focus on what you can change and work your you know what off at it. In the meantime learn, education yourself, all of which is free. Then look into finding a few mentors you can work together with. Numbers are one thing but much of this takes grit and the will not to quit.
"I make about $2600 a month and have only my truck payment of $560 a month"
More than 20% of your income goes towards your car each month, and that does what for you? You know the average multi-millionaire hasn't bought a car worth more than 40k in their entire life? Let that sink in for a minute. Also, why would you put extra money towards a car payment that depreciates?
I was going to write a lot more to help, but you said you don't want to sell your car which means you're beyond helping in my book. sorry to say.
In life, we need to know the difference between things we can change, versus things we can't. And then focus on those items that we can change.
With that in mind, you are correct in that if you had a student loan debt of 560 a month, nobody here would have an issue with it. But student loan debt is something you can not change, you are simply stuck with, in many cases not even filing for bankruptcy will make that debt go away. Meanwhile a car payment is something you can change simply by selling the car. See the difference?
Why are you so opposed to selling the car? Are you trying to impress someone? Because if the only reason a girl is interested in you is because you have a nice truck then you need to run away from that girl as fast as you possibly can. At 23 years old with a mediocre job, you can either spend your money and LOOK wealthy, or you can save that money and start to BECOME wealthy, but you can't do both at the same time.
This truck likely costs a lot more than 560 a month, I don't know what a 20yr old male with a 41k truck pays in insurance, but I would bet everything I own that you pay more in insurance per month than I do for my entire car payment. Not to mention gas, maintenance ect. I would assume that this vehicle costs you well over 800 per month once everything is included. You mentioned the possibility of selling this 41k truck that you have owned for a little over a year for 35k. So during that year, you have been making very large payments, and yet your car has DEPRECIATED and you have LOST $6,000 of net worth, let that sink in for a moment! You are trying to become an investor, and yet you pay 30% of your total income and in return you get the privilege of LOSING 6k worth of value!
You mentioned not wanting to take the easy way out....
WHY!!!!
There is nothing noble about doing things the hard way, and when it comes to making money, I guarantee that someone who plays it smart, will out earn someone who 'works hard' every single time. In the immortal words of Scrooge McDuck, Work smarter, not harder.
If you sell your car for 35k, and buy something outright for lets say 5,000 that would give you 11k left over once you repay the existing loan. That 11, plus the 7 you already have is 18k, which is very close to the 20-25k you would likely need for a down payment on a 100k house. Your debt to income ratio problem with the banks instantly vanishes, and your 800/month payment likely turns into closer to 100 since you own the car outright, and will likely just need liability + gas + minor maintenance. That 700/month savings will get you to your required 20-25k down payment in a matter of a couple of months.
In summary you can either work your tail off getting a second job, having little or no free time and ultimately save up the required amount of money in a couple of years, or you can sell the truck and immediately start looking for rental properties to buy as you would be ready to buy something in a matter of months and be well on your way to long term financial success.
Investor · Seattle, WA · Member since 2016 · 143 posts · 68 votes
9y
give it up already! stop beating the dead horse, the horse will never die. I, for one can understand why he will not get rid of the truck. once you have the lifestyle you want, it's so much pain to give it up. He'd rather get a second job or a third even to keep the truck. that's why first generation immigrants are so successful, they never had any luxury in life so they don't have to face choice like this. I remember hearing a story about Vietnamese refugees opened up their first restaurant and sleep on the floor when restaurant is closed. they use the money made to open two more restaurants and still sleeping on the floor! to them it's not much sacrifice compared to fleeting from the country.
Realtor · Saint Louis, MO · Member since 2017 · 228 posts · 174 votes
9y
I didnt read everything, but I thought I would give an alternative to selling the truck, sorry if it is redundant.
-Keep the truck, but drive it until the wheels fall off. You are paying for the piece of mind that the bumper to bumper gives and theoretically should get 5 more worry free years out of it.
-Get a second job to pay off the truck faster. Preferably doing something in real estate so you gain education while you wait. That education will be more valuable than the truck.
-After paying off the truck, keep the 2nd job for 1 more year, save up a 20% down payment. $25k is a nice starting point.
-In 3-5 years you can move out and keep investing. House hacking would be a good move at that point.
