Newbie on Cape Cod Massachusetts

6 Replies

Hello everyone!

I am VERY new to this market and other than my house that I "Own", 99% of my knowledge on real estate has been stuffed into my head over the past two weeks from this podcast, the Rich Dad series and YouTube. I consider my situation to be different from what I have found on the web, so I am hoping someone could throw out some ideas.

I am currently an MBA student getting paid monthly by the VA through VocRehab which is tax free and not considered a source of income for bank purposes. Although my education benefits are enough to cover my cost of living it is still not "real" income in the eyes of the bank. As I mentioned before I "own" a house on the Cape with a $1,700 mortgage payment. I am very interested and eager to start my real estate investing venture but like all newbies the thought of funding is the focus, other than finding a sweet deal of course. I am confident in my ability to get funding, whether it be private or hard money, but my question is related to following through with the BRRRR method which I have set my eyes on.

Say for instance I find a sweet deal for 200k and fix it up and find a great tenant that creates a cash flow of 1000 a month. My end goal is to refinance and get out of the high interest rate loan with the private or hard money lender ASAP. When I go to the bank to refinance I am afraid that they will hold my primary residence mortgage payment against me which will hold me back from the refinance. Even though I have over 4k of nontaxable income and now the 1000 cash flow from the rental a month, they will only count 75% of the 1k as income which is well below the debt to income requirements.

Should I start an LLC and purchase the rental property under that business? Would that separate the two house and make it possible to follow through with the BRRRR method? Or is there another way that my newbie mindset hasn't even started to understand.

If you have made it this far into the post I want to thank you for your time and I am hoping one day in the future I can be the guy who answers a newbie with some great ideas!

Positive cash flow of $1000/month on a $200,000 purchase in Barnstable County would be great but seems like your missing a lot. Downpayment? Financing? Renovation? Where and how are you prospecting? Not trying to be negative. I’m happy to offer advice but I’m genuinely curious to hear more of the strategy. Have you looked at yearly rental $ numbers on Cape?

Originally posted by @Mike Fitzgibbons :

Positive cash flow of $1000/month on a $200,000 purchase in Barnstable County would be great but seems like your missing a lot. Downpayment? Financing? Renovation? Where and how are you prospecting? Not trying to be negative. I’m happy to offer advice but I’m genuinely curious to hear more of the strategy. Have you looked at yearly rental $ numbers on Cape?

Mike,

Thank you for reaching out! I am not narrowing my area interest to Barnstable County for my first investment property, that just happens to be where the house that I own is located. I am willing to look at other areas of MA that will hopefully produce that cash flow from a multifamily, which will obviously depend on the area and rental rates. I know I should focus on getting the first deal and original finances (private, hard money etc..) but I cannot help but wonder what will happen once I try to refi out of that financing after the first 12 months. I am trying to be a little proactive on that front.

Since I will no longer have a W2 job when this happens, any bank I try to refi will hold both properties toward the requirements. The money I receive from school and the new property will more than cover the expenses for both mortgages, but no banks consider my VA housing allowance as income, so I will remain unbankable.

My question is there anything I can do now that will hopefully separate the two properties when I try to refi? I know starting an LLC is a good idea but the 8-10 months of rental income for the newly started LLC may not be enough to get a mortgage loan through the LLC alone without the bank looking at my personal finances, which will then uncover the 1,700 a month mortgage and not enough verifiable income to cover both.

I may be completely off on this approach. If I should just focus on getting into a deal and then worrying about step 25 once the time comes please don't think you are being negative. I appreciate any advice!

My brief strategy would be to work with a previous colleague who has been in the real estate business a while, produce a multifamily property around 200k that will need no more than 25k in repairs (hopefully), then put all the numbers together using the BP calculators and any information I can get my hands on. Ask around my inner circle for potential private money investors and even throw in some of my own cash if necessary. Get the funding and buy the property. Rehab will be done by myself, since I am handy and going through a contractor who I have known for a while or maybe a referral from him. Then find a tenant(s) through the same realtor. If the numbers are on point, it will cash flow. Then refi ASAP.    

Again, thanks for your time!     

Alex, I am tryign to follow the chain here but bottom line any back end bank is not going to like the fact that you have no w2 income at the time you want to refinance.  They will look to leverage whatever they can so offset their risk if they will even give you a loan at all.  Meaning it will be tough for you to get a loan with no income, despite the quality of the deal.  You may want to find a good lending partner, do some short term flips to gain a nice amount of cash, then start adding to your hold portfolio once you have some W2 income, and are bankable?  Just a thought, might not be the only way.  

Chris,

Thanks for commenting! That seems to be the route all my research is taking me. Although my end goal is building a strong rental property portfolio I will need to provide banks with verifiable income. Seems like forming an LLC, do some short-term flips like you mentioned with private money, pay myself and build my income will be my path.

This may be a ridiculous question, but I pay myself a salary from my own LLC that would be considered W2 income? I guess it wouldn't hurt to speak with the local banks to see what they require in that specific scenario.

I would consult with an accountant about that question but I can say with certainty that becasue you are the manager of the LLC it is considered pass through income not W2 income. Once you can show enough of it banks will be satisfied, but that will take you owning enough buildings to show decent cash flow / income to you. That is why i recommended the strategy that I did. Let me know if I can help, my office is in Raynham.

Alex, 

How is everything working out for you? I'm currently in a very similar situation right now. I was planning to come back to the Cape soon and use my GI Bill before beginning to invest. Let me know how things worked out.


Jeff