I want to get started investing..... What would you do??????

Question

Hello everyone. I am a newbie and looking into beginning my investment career. I have listened to several podcasts and audiobooks, I've read several forum posts on Bigger Pockets and social media posts in different groups, and have talked to a few of the local investors in my area, and I feel like I have a decent grasp on beginner investing. My wife and I are wanting to start with an STR investment in our local market (Upstate South Carolina), and would just like some advice from more experienced investors, based on our current financial situation.

As of right now, I don't have a huge savings, around $5k. My credit score is decent (low 700s). I do have 1 mortgage, with around $80k-$100k in equity in my home. My DTI is somewhat higher than I want it to be, and is not where my local lender wants it to be to offer conventional lending. I am employed, and also run a side service business that will begin profiting Spring of next year. I plan on leveraging that profit to reduce my DTI, but I have to wait until the busy season starts. My wife is a newly licensed RE agent and has only had a few closings since she became licensed, so I want to leave her income out of this situation for the time being, as it hasn't been as consistent.

My question to you is, what would you do our shoes to get started investing NOW? I have read over and over to not wait, to jump in now and get started. But, I am not sure the best way to go about it. I don't want to be too risky, as I do have a family to look after, but I also don't mind taking some chances. Do I take out a HELOC? Do I refinance my home? Do I wait and pay down my debt to get my DTI lower so I can get conventional lending without taking equity out of my home? What would you do?

Thank you in advanced for any input you can offer.

Matthew Crivelli · Answer

@Wayne Clark

Correct DSCR Loan.

We would use LTR market rent figures provided by an appraiser to qualify the loan yes. No previous rental history required as long as there are market rent comps in the area. So even though the plan is STR we would still use LTR data. The LTR rental figure would need to exceed the monthly costs of the note just like any other DSCR loan.

Wayne Clark · Answer

Sam, I think finding the right lender has been the biggest issue for us. I am going to work on reaching out to a few other lenders and seeing what I can do.

Sam Smith · Answer

@Wayne Clark I would talk to the lender specifically about using her commission as the down payment. As in, ask what it would take to consider her commission as part of the down payment before she has receives it, not as a reimbursement to yourself after the fact. Do you need to have a contract written up? Do you need to get the title company in on it early so that every is clear on the process?

I know it's been done plenty of times before, you might just need to find a lender who has done it before so that at least one of you knows the process.

Matthew Crivelli · Answer

@Wayne Clark The BRRR can totally be done even if you plan on using it for a short term rental. When it comes time to refi we have an appraisal done and get the figures on market rent . We would use that number to qualify the loan. So you need to make sure long term rental figures can support the note even though the plan is STR.

Wayne Clark · Answer

Hey Sam. So we have talked about using the commission as a down payment, but our issue is that every closing she has had so far, its been a 24-48hr turnaround time for her to receive her payment, so that has been the issue so far.

And yes, I've been to several showings for "myself", trying to find out exactly what we want to start with. It has been a great experience so far, and I've learned a good bit about what I want and don't want to deal with.

Sam Smith · Answer

@Wayne Clark,

If your wife is a licensed real estate agent, you might talk to your lender about using her commission on the sale as part of the down payment. I've never done this myself, but have talked to people who have. Apparently different lenders handle it differently.

Also, it might be best to just take the time, pay down the debt, and continue to learn. I know the feeling of being ready and raring to go, but if you are patient, get your DTI where you need it, and save up some more money from your part time job, then you'll be in a great position 1 year from now.

Meanwhile, I would use your wife's license to it's fullest potential. Are you actively looking at houses with her to get the in-person analysis skills for when you are ready to buy? That's what I would be doing if I were you

Good luck with it!

Matthew Crivelli · Answer

Would your local lender be open to a HELOC? You could try to pull your equity and use it to continue buying. A HELOC can be used to qualify you for a private mortgage.

I would focus on finding flips or a BRRR. This way you can pull the down payment out at the end so you can recycle the money to buy a 3rd and 4th house.

Another option would be to find a partner to back you. You find the deals and handle the process and they bring the cash.

Wayne Clark · Answer

Hey Matthew. Quick question. If I wanted to purchase a home and prep it as an AirBnB, couldn't I still technically "Brrrr" it? I know it isn't a traditional "Brrrr", but being able to purchase, fix, refi, and then STR it should still be able to be done, correct? I apologize for the ignorance. Financing has been my biggest headache when it comes to learning RE investing.

Wayne Clark · Answer

@Nicholas L.

I have $5k in savings. I also have between $80-$100k in equity in my primary residence that I am willing to use via HELOC or cash out refi for a down payment/rehab project. I am really looking more and more into a DSCR loan to get started with.

Nicholas L. · Answer

@Wayne Clark it's very difficult to purchase something using conventional financing and have it be a "true" BRRRR where you get all your capital back out.  There are posts on BP about why this is.

If $5K is all of your savings - emergency fund, cash, short term investments, etc. - it just seems like you need more cash first.  Or are you saying you have funds for a down payment + $5K in savings?

I want to get started investing..... What would you do??????

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