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.
Realtor · Mesa, AZ · Member since 2015 · 163 posts · 99 votes
9y
Omar,
You have 2 options with the car. Either sell it and buy a car in cash or pay it off. A $560 car payment while making $2600/month and trying to be a RE investor just won't work. Especially if you have a vacancy or big repair, you can find yourself backed into a corner pretty quickly. Like yourself, I also started at age 24 with buying my first home which I still live in, and will be a rental when I move. I got a FHA loan with 3.5% down. I then "house hacked" it and had my brother and buddy paying most of the mortgage for a few years. This has allowed me to acquire 3 more rentals in the last year. I would suggest looking for a duplex with FHA financing and rent out the other side to have it cover most of your expenses. You can then see if you like being a landlord while also being able to save up quickly for your next down payment. Good luck and feel free to reach out if you have any questions. "Live like no one else will, so that one day you can live like no one else can."
Cambridge, MA · Member since 2017 · 268 posts · 247 votes
9y
Get a second job. At 20 hours a week for 7 bucks an hour will cover your truck. House hack a duplex for 3.5% down keep the truck and re-evaluate in a couple of years.
Investor · Rochester, NY · Member since 2013 · 103 posts · 55 votes
9y
Omar Cantu Good morning sir. So I have seen this post at the top lately, and haven't really looked at it until this morning. I also don't have time to read through the entire thread, so I am sure what I have to say has already need said, but I'd like to offer my advise anyway. If something that I say sticks, hopefully it will help lead you in the right direction. And please don't take offense to anything I have to say.
When I was younger, I was in the same boat as you. I had a great job when I was 21 (family business) and was making excellent money, all while living with my parents with next to no expenses. The downside was that I was really into cars. Throughout my younger years, I owned a Corvette Z06, Chrysler 300C, Audi A4, and a few more. And to make matters worse, none of them were stock. I dumped money into every single one of them, over $25k into the motor alone on the Z06. All so I could have the hottest car in the neighborhood and make people envious when I pulled into the gas station.
What did all of that get me? $0 in my bank account and $32k in credit card debt. Now, I'm sure a lot of that doesn't relate to you, but I want to make a point. At some point in your life, you have to ask yourself, is owning a nice car, or anything else that's a "waste" of money, really going to better your life and your family. You have to be mature enough to make a decision based on your future. The fact that you are interested in real estate means you're starting to think the right way. But don't stop there. I know you love your truck, I get that. But if you can lose the $5XX/mo. payment and maybe pick something up for $1XX/mo. then you have $400 instantly to put towards real estate. Why not better your life now, and buy a better truck 10 years from now that's better than what you have? Use that as motivation and set huge goals.
Anyway, I'm off on a tangent. Just wanted to give you some advise since I experienced a similar thing when I was your age.
Feel free to PM me if you'd like to chat sometime.
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
9y
The issue with owning the truck which results in a high DTI while living at home is that it shows no sacrifice and prioritizing success lower than giving up the good, easy living. No decent mentor will choose to have such a protege.
My last protege worked as a janitor while going to school to get his BS in engineering while supporting his family. He worked as my handyman after hours and on weekends. He constantly was requesting more work and he did great work with great pride in his work. Basically he was exceptional (especially if I included the fully story - his story could be made into a movie).
Today he owns 5 rental units in San Diego county, lives in a nice home and drives a corvette. He made sacrifices to improve his life. Now he is living the good life.
There are many people who want to learn from mentors. They are willing to make sacrifices far greater than selling an expensive truck to reduce DTI and to show commitment.
OP may succeed in RE but I think it is unlikely. He is unlikely to get a decent protege due to not showing enough commitment. He is unlikely to get as early or as large a start as possible due to too high DTI. Basically his decisions are handicapping his chances. He is competing with others who would make much larger sacrifices to succeed.
Rental Property Investor · Chandler, AZ · Member since 2011 · 145 posts · 79 votes
9y
@Harrison Liu if he had the lifestyle he wanted I don't think he'd be trying to do real estate.
Have you considered adopting a different strategy? I had this same issue with SFR and residential in general, so I decided to pursue things with less competition i.e. raw land and commercial.
How much networking have you done? I myself started out with (and still have) crummy credit and only a modest fixed income, but you'd be surprised how much money is available when you're proactive. Invest your time taking people to lunch. You'll be amazed at what happens. At least you could use your truck for that.
TL;DR: Giving up the truck isn't the easy way out, as he's claimed, and experienced investors have agreed; it's actually the hard way. Once Omar understands this, he can get on the path to realizing his dream of real estate investing.
Omar, I apologize if any of this has been said already... I haven't been able to read all of the responses yet.
I think this is an excellent thread, and a lot of very useful advice has been coming to it from seasoned investors. I'm going to take a look at the truck thing from a different angle, and I'm hoping that my perspective might make a difference for you.
Throughout the thread, you've maintained multiple times that selling the truck is the "easy way out." Many investors have agreed that it's the easy way out and advised you to take it; others have said that taking the path of least resistance is simply a wise thing to do. They're right about the path of least resistance, but the reality about your truck is a little different.
You see, selling the truck is not the path of least resistance for you. Nor is it the "easy way out," as you've characterized it. In fact, that description of selling the truck is actually what's called "rationalizing." By calling it the easy way out and dismissing the suggestion, you're rationalizing and creating a justification for not dumping the truck. The reason that you're doing that, whether you know it or not, is because selling the truck is, in fact, the most difficult thing you could do right now. And by creating this narrative and image of, "I'm willing to do the hard work, there has to be another way... I will get through this!" you're deflecting from the hard work and the real steps that you know (after reading this thread) you have to take.
Indeed, the truck is a status symbol, a trophy that you've paid into, worked hard for, and want to hold onto. At this point, you've put so much blood and sweat into it already that to give up the truck is nearly inconceivable. The truck, for you, isn't just a truck... It's so much more, because at this point, the payments on the truck and the realities of DTI, down payments, available cash, etc. make the truck the most substantial and obvious barrier to your dreams. To sell the truck would represent true sacrifice, and it's exactly that kind of sacrifice that is a common thread running through the backstories of some of the world's most successful entrepreneurs.
The truck is a depreciating asset and a money vacuum. And it'll only get worse as it ages and the warranty runs out. A lot of seasoned and wise investors agree on this point, and these are well-read, experienced people who know what they're talking about. If the experts are all saying the same thing, well... You can do the hard work and make the sacrifice now, give up the comfort and the status symbol; or, you can continue with the way you're going, look back five years from now, and be in the exact same place you are today. By that time, the only differences will be that the truck will be older, have aesthetic/mechanical issues, be worth a lot less, and nobody will be excited by how it looks or drives. But you'll have at the very best, delayed your real estate investing dreams for it, or at the very worst, given up entirely.
Rental Property Investor · Allentown PA, United States · Member since 2016 · 567 posts · 442 votes
9y
In order to have what others don't have, you have to be to do what others won't do. Do you realize that over 20% of your income is going towards a truck payment?! I'm sorry but that is insane. Not sure if you need a truck for work, but I would sell the thing and buy a 10 year old used one for like 3-5k. Before getting and keeping business finances in check(yes even a house hack is a business) you need to be able to keep your personal finances in check.
If you don't like what this mortgage broker has to say, I'm sure there's 20 others in your area that would love your business. Get out and network. For someone who's wants to build wealth through real estate at a young age, I see no reason why an FHA house hack can't be an option. I wish you the best of luck and feel free to reach out anytime.
In order to have what others don't have, you have to be to do what others won't do. Do you realize that over 20% of your income is going towards a truck payment?! I'm sorry but that is insane. Not sure if you need a truck for work, but I would sell the thing and buy a 10 year old used one for like 3-5k. Before getting and keeping business finances in check(yes even a house hack is a business) you need to be able to keep your personal finances in check.
If you don't like what this mortgage broker has to say, I'm sure there's 20 others in your area that would love your business. Get out and network. For someone who's wants to build wealth through real estate at a young age, I see no reason why an FHA house hack can't be an option. I wish you the best of luck and feel free to reach out anytime.
There is no such thing as a reliable used TRUCK for 3-5k. Thats a pipe dream. More like 8-10k and even then you'll have minor repairs.
Investor · Ponca City, OK · Member since 2016 · 46 posts · 15 votes
9y
Have you researched wholesaling? I bought a purchase contract from an investor... He did not have money to buy, so he located good deals and assigned the contract to someone who could complete the purchsse. He got $4000 for bringing us a townhouse deal, it needed small roof repair, cosmetics where leak was, and some updating. Truly a paint and paper job. We bought and sold within thirty days and made six thousand ourselves. Just a thought....
Investor · Ponca City, OK · Member since 2016 · 46 posts · 15 votes
9y
It's not a n overnight riches deal. You need to be educated. find an investors REIA group, join. Go to all their meetings you can. You will learn and get to know what others are doing, hurdles you will encounter and pitfalls to avoid. As with any education you need to spend time with those who know more than you do.
Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
9y
I did not read entire thread. It may have been mentioned but you can use the truck to make you money. Hauling or helping people move stuff. "Strong Man with Truck" moving or hauling text Omar today! Affordable rates. You could also end up with a bunch of stuff, tables, chairs, sofas, refrigs etc you could craigslist the extra stuff. Or get the appliance dolly with the lift mech and focus on being the local mover for just that. You might run into some motivated landlords clearing out their eviction.
Real Estate Agent · Kennesaw, GA · Member since 2015 · 308 posts · 153 votes
9y
I was just in the same boat 4 years ago. I had a $600/mo new truck and couldn't invest due to it. Fast forward 2 years I could have written a check for the same truck and have $1500/mo in cash flow from investments. Selling that truck enabled financing freedom.
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.
Without trying to crude, people with car payments are great for business, because they are less likely to ever be able to buy a home and therefore will remain renters for a much longer period of time.
Anyway, back on topic. Everyone's already beat the get rid of the truck part to death, so I don't want to repeat that though I concur wholeheartedly. I was going to say something along the lines of what @Steve Vaughan said - one day you're going to be tired of that truck. It's going to just be basic transportation. It's going to have dents and dings and scratches and stains. It's going to be boring. And when that day comes, it's going to be worth about 25% of what it's worth right now.
people with car payments are great for business, because they are less likely to ever be able to buy a home and therefore will remain renters for a much longer period of time.
Very true, Jd. Most of my renters have 'moved up' in car and aren't going anywhere. Full employment for us! They all have nicer cars than I do, but that's not saying much.
A couple of my larger house renters are on the extra 'renters for life' bonus plan. They had the truck, but have now added a crotch rocket and boat. Woo-hoo!
people with car payments are great for business, because they are less likely to ever be able to buy a home and therefore will remain renters for a much longer period of time.
Very true, Jd. Most of my renters have 'moved up' in car and aren't going anywhere. Full employment for us! They all have nicer cars than I do, but that's not saying much.
A couple of my larger house renters are on the extra 'renters for life' bonus plan. They had the truck, but have now added a crotch rocket and boat. Woo-hoo!
LOL. Me too. Personally, I think I have a really nice truck - a 2004 Nissan Titan 4WD Crew Cab, which does maintenance duty and family truckster duty, and has almost 150k miles and is paid for and has been in my driveway for 8 years - but whenever I visit one of my rentals for a quick repair, people who haven't met me think I'm the handyman. I don't bother telling them I actually own the house they're visiting.
It's one reason I try not to be too critical of people who want to spend all of their disposable income on status - clothes, cars, vacations, whatever. If not for those people I'd be competing with a lot more people for buying houses, and I'd have a much smaller pool of renters. So I let them live the status life, and I take the leftovers :D
Investor · Los Angeles, CA · Member since 2017 · 95 posts · 52 votes
9y
On this side note of owning an older car.... I live in Los Angeles and love my '05 accord. I've got a little over 200k miles on it but it still runs great (hopefully the original trans will last). I have several dents and scratches that give me zero headaches when i discover them. I also save on car washes (as I never get one). As long as it doesn't impact how the car runs, I don't get stressed. A year ago I was on the freeway driving to work and the car in front of me ran over a large object, which then hit my fender and literally sliced a chunk of it off. I didn't notice it until I came home but I did not lose any sleep over it. As long as the fender doesn't have any risk of falling off I'm ok with having a volleyball sized hole in it.
All my family members tell me to get a new car and it's so unappealing to me. I love the freedom of not having to worry about a scratch here, a dent here, a hole here. Hopefully my car will last until 300k or until my older son is ready to drive so i can pass it down (He's 6 right now. haha)
Rental Property Investor · Dallas, TX · Member since 2012 · 502 posts · 263 votes
9y
@Omar Cantu I think we're all beating a dead horse at this point, but I want to address a few specific statements from your original post.
You said it feels almost impossible to get started in real estate investing. It is not impossible. It is difficult. If it were easy everyone would own real estate and be millionaires. You have to be willing to sacrifice something to make RE investing work. As mentioned, the easiest would be to sell the truck. But if you don't want to do that, fine. Get a second job. Work for free for another investor to learn the ropes. Knock on every door in your target neighborhood until you find someone that will sell you their house with owner financing.
What is your goal? What action have you taken toward that goal? You mention not having the capital is what is currently stopping you. Lots of people have suggested ways to build capital, or even ways to buy real estate without needing capital.
This will sound harsh, but until you take it to heart you will not be successful in real estate. Real estate investing is simple and accessible to almost anyone. If you think it is impossible, you are not yet willing to make the sacrifices it takes to be successful.
AND THAT'S OK! Everyone has different priorities. Own them and live your life within that construct. If you find that incompatible with major life goals, you need to rearrange your priorities.
people with car payments are great for business, because they are less likely to ever be able to buy a home and therefore will remain renters for a much longer period of time.
Very true, Jd. Most of my renters have 'moved up' in car and aren't going anywhere. Full employment for us! They all have nicer cars than I do, but that's not saying much.
A couple of my larger house renters are on the extra 'renters for life' bonus plan. They had the truck, but have now added a crotch rocket and boat. Woo-hoo!
LOL. Me too. Personally, I think I have a really nice truck - a 2004 Nissan Titan 4WD Crew Cab, which does maintenance duty and family truckster duty, and has almost 150k miles and is paid for and has been in my driveway for 8 years - but whenever I visit one of my rentals for a quick repair, people who haven't met me think I'm the handyman. I don't bother telling them I actually own the house they're visiting.
It's one reason I try not to be too critical of people who want to spend all of their disposable income on status - clothes, cars, vacations, whatever. If not for those people I'd be competing with a lot more people for buying houses, and I'd have a much smaller pool of renters. So I let them live the status life, and I take the leftovers :D
I'm seen as the handyman, too. Especially at the apt bldgs. They don't even ask if I own!
The houses they know because I screen for interest in owning. It's my 6th question on my ads. A lease option mindset is established, without the option in writing. I want people that want to buy.
I'm a little worried about one young couple in one of my starter homes. They each have 2 jobs and drive a beater. They want to buy my little rental house they're in next year and just may get there!
Rental Property Investor · Allentown PA, United States · Member since 2016 · 567 posts · 442 votes
9y
Andrey Y. You can absolutely get a decent truck for as little as 3-5k. A car should get you from point A to point B, and if you NEED a truck I'm sure just about any truck bed will do. If you want one for 8-10k and can afford it fine, but if you're trying to save as much as possible there's no reason you can't get away with something in that range. You'll have repairs on any used cars and a lower end one will depreciation at a far slower rate than a more expensive one. Even with the average expected repairs you end up paying less $$ per year in that range. Not saying everyone should drive an old car, but I'm saying you absolutely can if you have to so I wouldn't write it off so quick. I drove a Nissan worth $1500 for almost 2 years and got the transmission replaced from a junk yard and someone from Craigslist to put it in to keep driving it until I sold it.
Mcdonough, GA · Member since 2015 · 20 posts · 6 votes
9y
Dude you need to build more capitol. Go to yard sales and flip their junk. Build up some seed money.
I started buying land last year with $1500. Flipped that lot for $3500 and repeated the process. I now have 5 lots and once all sold I'll net 40-50k.
No rush man just put your head down and start where you are. If that's $100 cool. Go to thrift stores and yard sales. If that's $2k pus reach out to me and I may be able to send something small your way I don't want.
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!
Another strategy on closing costs is to use the inspection report to add a significant sellers credit towards closing costs. I just did that for some relatively minor stuff that isn't urgent and got a 5K credit.
Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes
9y
Motivation:
I'm a millionaire and I drive a 13 year old car with a lot of miles, dents all over and no working air conditioning, no power door locks, windows, etc....
I can buy a Bentley, Ferrari AND a Lamborghini, paid with cash...
All because I drive cars worth a fraction of that of my tenants and make better financial choices.
Noblesville, IN · Member since 2015 · 18 posts · 8 votes
9y
I bought my house last year, I was 22. Let me tell you right now, ditch the truck. I had to pay credit cards down to get my DTI under control. And my car payment was and still is $173/mo. Having lower monthly obligations allowed me to save a decent down payment quicker & helped my DTI ratio. Sure, I didn't always have clothes as nice as my friends, i definitely didn't have the coolest car, but Im the only person my age that owns a house in my peer group i associate with. I already have $8000 in equity in my home. I was approved for $157,000. My next step will be to purchase an investment property using a HELOC/401k.
You're in a good spot having just that 1 monthly obligation, so imagine this. You drop the car payment, get something cheaper, save $18000 in 9-10 months and you have your 20% on the conventional loan of $90,000. Now you're not paying Mortgage insurance either using FHA if you were to occupy one side. I dont know, i'd kill to have an opportunity like that. Dont blow it.
