Second Chance, restarting out

2 Replies

Hi everyone,

Let me take a moment to introduce myself and breifly describe my circumstance. I am in my early 30's, have a good corporate job and have saved about 30k in cash reserves. I am tying to restart my rental property business after a terrible failure due to critical miscalculations and a flawed business plan and property analysis.

I have always had a huge interest in real estate and knew from my late teens and into college that I wanted to build a rental property business as a second job and eventually move to full time when I was able to.

About 5 years ago I had just graduated college and had managed to save up some money. Real estate was expensive but I was determined to buy my first rental property and start my business. I found a nice 3 family in an urban area that I decided to buy using a risky 80/20 loan with high interest rates with the intention of refinancing into a 30 year fixed the following year. I was doomed for failure the second I decided to buy that property at that price and loan terms. The price was too high, expenses would turn out to be too high and cash flow was too low. I really wish I read Mike Rossi's book before I decided to buy, it may have saved my business life. But hindsight is 20/20 and I did not foresee the housing crisis that was ahead.

Over the next 5 years I tried everything to turn the property from negative cash flow to break even or positive. I went through some huge expenses and a predatory tenant and it wasnt long before my capital reserves were gone and I was doing all I could to just make the monthly payment. I spoke to a real estate attorney that advised me to file for chapter 13, he said he could have the principle reduced to marked value which had dropped 50% with the housing meltdown. THat sounded like it would fix my cash flow problems so I took his advice and hired him to do the chapter 13. It turned out that he misrepresented his services and he was not able to reduce the principle of the mortgage. The repayment plan was too expenseive and I eventually ended up falling behind on payments due to additional expenses related to the property and lost the house to forclosure.

Now I have a BK and foreclosure on my credit. This breaks my heart as I have always been very responsible with credit and at one point had 800 credit score. I made some critical mistakes in my original analysis of this property and I have paid dearly for it.

Has anyone been through similar situations or have any insight or advice for me?

My goal right now is to fix my credit, build up my cash reserves which are at 30k now and get back into the rental property business. The lessons I have learned through experience have been painfull by will be valuable in the future.

Is it possible to start again? I know I will have problems getting credit. Any advice? Sorry for the post being so long but I am severly depressed that I failed and I feel like if I dont try to get back on track in regards to my rental property goals I will forever regret not trying again. I am in my early 30's, hold a good corporate job and have been able to save about 30k in cash so far. Is the damage too excesive to restart?

Thank you for any and all advice.

There are other strategies you could employ to get around your issues. Imo, there is nothing wrong with trying and failing. That is how we learn. What is most important is not to repeat the mistakes of the past. You could look into owner finance strategies. Some won't run your credit. You could do this by networking at your local REIA or by marketing. You could also take on a partner and either use his or her credit for the loan or use cash instead.

Thanks Brian,

Actually I have been looking into owner financing. I was thinking of using owner financing in the short term in order to buy and then refinancing into a conventional loan when my credit is repaired and I qualify. I am taking my time with evaluating properties because I understand that finding the right deal and the right price will be crucial to my rebuilding process, I really want to succeed this time and I am confident I have learned from the mistakes I made the first time around. I am eager to get back into investing because there are some great deals to be had now and I feel like the market conditions present a once in a lifetime opportunity for great prices and I dont want to miss out but I have to be diligent.

Does anyone have any advice of some steps I should take in order to repair my credit to the point where I could qualify for a loan at decent terms?

I really feel terrible about the position I am in but there really are only two choices I can make; forget about my real estate aspirations and probably regret it for the rest of my life or get back up, dust myself off and work to achieve my goals. I know I can succeed but it is going to be much more difficult now because of my credit.