Real Estate Investor · Hampton, VA · Member since 2013 · 10 posts · 2 votes
Purchased 1st investment property last month for $89K, appraised for $119K. Should have it rented for $850 by the 1st of Jan and the mortgage is only $564 ($286 passive income/month). Just came across another property 4bdrm and 2th....1700+sq ft being sold for $45K, checked it out and pending inspector not finding any structural damages should only be $10-15K in repairs to have it rent ready/ready for sale and appraised for $130K+. Checked out the rental market and should be able to get it rented for $1300 a month and hope to get a mortgage that's no more than $300 a month. Our Debt to income ratio is high at the moment but ok with that because we have money in the bank to cover bills for 3yrs. We don't want to buy the new prospect house cash out right out of our own funds but I don't want to let this deal pass us by. Any suggestions on getting funding and/or am I moving too fast seeing that I just recently purchased my first investment property?
Say what you want, lending at 3-5% with that risk, you're an idiot. Or if jake wants to frame it as naive, thats fine too.
Either way, you don't know what you're doing or understand the risk you're taking on.
No one "Doesn't believe it's possible", it's only that we don't focus on trying to find people who are clueless about the risk they're taking on. My business relationships focus around creating win/wins for people, giving them 3-5% on flips is not a win/win in my eyes. Run your business however you want and save the preaching for somewhere else.
@Ian Harris If you can buy a property for $60K all in, rent it for $1,300 per month, and have it worth $130,000, you are not moving fast enough, you should have already bought it.
45k isn't bad for downtown Hampton but I've seen them go for lower. I've bought several houses in downtown NN and Norfolk for 10k to 25k range and they rent for 700-900/mo pretty easily and some require minimal repair. PNC is the only bank I've seen around here offer to lend less than 50k but I've done all my purchases with cash, equity lines of credit or credit card advances through USAA.
Purchased 1st investment property last month for $89K, appraised for $119K. Should have it rented for $850 by the 1st of Jan and the mortgage is only $564 ($286 passive income/month).
You might want to recheck your numbers. What about insurance, property taxes, are you responsible for anything like trash?, and what about a misc allowance? (I usually use $50/month on properties this size). I think you'll find over the course of the year you won't be close to the number you though you were going to be. I only mention this because I don't want you to base returns on false numbers. While you may still positively cash flow on this house, I think you will find it closer to $100/month than $286.
You total debt to income ratio must be 50% or less before Jan 9, and changes to 43% Jan 10. You can not use assets to off set your income all you need are 6 months PITI reserves <45% DTI and 12 months PITI reserves 45-50% DTI so although you have 3 years reserves it's a moot point.
You can use the income from the properties to qualify IF you have 2 years landlord experience generally evidenced by last 2 years tax returns Schedule E.
conventional loans (the ones with low interest rates)
Hey Ed, how are conventional loans the ones with the lowest rates? We have private loans with all types of individuals ranging from 3%-9% all backed by real estate. Some of our loans don't require monthly payments as well. Some lenders want quarterly payment, Interesting statment...
conventional loans (the ones with low interest rates)
Hey Ed, how are conventional loans the ones with the lowest rates? We have private loans with all types of individuals ranging from 3%-9% all backed by real estate. Some of our loans don't require monthly payments as well. Some lenders want quarterly payment, Interesting statment...
whoever is lending you private money for 3-5% is an idiot
conventional loans (the ones with low interest rates)
Hey Ed, how are conventional loans the ones with the lowest rates? We have private loans with all types of individuals ranging from 3%-9% all backed by real estate. Some of our loans don't require monthly payments as well. Some lenders want quarterly payment, Interesting statment...
whoever is lending you private money for 3-5% is an idiot
Now Joe, be nice. His mom may be lending money at 3%
Dang-it Joe! I was hoping he would come back with 30 Year Fixed and I could get rich sending all my deals avoiding these darn new fannie/freddie guidelines! : )
hey guys, sorry to delay your anticipation, there are people that want to see other people succeed, I see @Joe Delia and @Ed Wood don't seem to have met these types of people willing to believe in their operation, yet. I was challenging a statement like "conventional loans are the lowest rates". You have the right to your opinion, but that is not a fact. I hope my mother is not ever brought up again in this business forum @Bryan H. . Just as I've always stated, this game is just like the nfl, all coaches are doing the "right" thing to win the game. I trust you are doing the same... This country is full of people with money sitting on the sidelines making 1%.
I will agree, these types of loans are challenging to find, but not impossible. They are not governed by your fannie/freddie, We use Self directed roth IRA money and Self directed Roth 401k money to achieve our investment goals...
Oh, won't disclose any more info on this topic as my colleagues have their minds made up that what we do is not possible, I'm glad, perhaps the people they don't find from not believing will end up lending to me. I think it goes like this:
1st Believe, 2nd come actions, 3rd comes results. Looks like my colleagues have short circuited their brains & businesses at the 1st step, and that's ok too.
If I were like you guys, then no, I would never have favorable terms with my lenders. Perhaps your tenure has warped your thinking and stunted your growth.. let's go... If this post in any way helps you please vote for this post...
Kris Haskins thanks for your post. You are totally right, it is possible to get funds at 3-5%. My clients are generally satisfied with that type of yield since they can borrow money at much lower rates.
Ed Wood for what I get, no, they are not 30 years. Mine are short terms 3-5% per annum loans for my flip, but my clients have the option of drawing their money every 6 months so they get the yield of a FD or better plus flexibility to withdraw if they find better opportunities.
I just want to clarify because if there is lower cost money out there with less underwriting guidelines I can do a lot more business. I don't do short term loans for rehabs all my mortgage business clients are 1-4 unit by and hold investors do either of you have lower cost money than conventional loans? My customers will take 5YR ARMS or 30 Year Fixed terms.
Ed, you're talking about back end DTI ratios and conventional lending which is typically associated with retail buyers. Kris and CK are talking about private money, which is not available to retail buyers.
While 3% sounds low, it is also true that there are people who have different appetites for risk, and there are people that don't even bother to ask the risk/yield question and are just excited to be "investing in real estate". It stands to reason that the folks lending from their self-directed IRAs are not overly experienced or familiar with the marketplace, since there is an abundance of alternatives that offer a higher yield for the same or less risk. But, Kris and CK worked hard to find those people, so we probably shouldn't chastise them for it. No different than finding a seller that is willing to sell their property for well below market value... it isn't our job as investors to make them unnecessarily familiar with the marketplace.
There is no "too fast". I just qualified for 3 loans in a month. The third loan was approved before the first house had even closed. It is a matter of whether you have the capital and the debt to income ratio to qualify for the loan. Go talk to your lender right away about that property.
With that said property #2 looks a lot better than property #1. Justin B is absolutely right that your cash flow is not as high as you think. Hopefully that $564 mortagage includes taxes and insurance and is not just P&I. There will be some repairs and vacancies.
Say what you want, lending at 3-5% with that risk, you're an idiot. Or if jake wants to frame it as naive, thats fine too.
Either way, you don't know what you're doing or understand the risk you're taking on.
No one "Doesn't believe it's possible", it's only that we don't focus on trying to find people who are clueless about the risk they're taking on. My business relationships focus around creating win/wins for people, giving them 3-5% on flips is not a win/win in my eyes. Run your business however you want and save the preaching for somewhere else.
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Hey Bigger Pockets family, how is everyone.? I'd like to say thanks to the folks that took time out to offer suggestions and insights. Well not sure if I mentioned it before but i'm in the military and currently deployed. Before I departed to this deployment I put alot of time into getting my 1st investment property ready for a tenant and i'd like to share that on the 1st of Feb a tenant moved in and loves the house. I already have my first hiccup that has come up with missing garbage/recycling bins but I have a uncle close by to help me out with this issue. While i'm here I plan on being really engaged with the forums and networking with all the great people on this website. fyi, I didn't go through with the 2nd investment property that I started to discussion on but plan on finding the right one by now and the time I return home. ttyl
@Ian Harris first, thank you for serving. I would echo what some have said here. Your first buy really does not cash flow. You have to plan on taxes, insurance, repairs, vacancy, and sometimes property management. The second property looked much better. You might consider the 50% rule. That says to expect that 50% of your rental income per month needs to be dedicated to the expenses I listed above. Then figure out your monthly payments to see if you have money left over. You still need to run the actual numbers, but it is a great starting place. Thank you again for serving.