Rent too high, but can't get approved for loan

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Rent too high, but can't get approved for loan

Brandon Smotherman
St. Louis, MO · Member since 2015 · 6 posts · 0 votes

Good evening everyone!

First post and excited that I accidentally stumbled across this place after reading Rich Dad. I've already listened to a few of the Bigger Pockets podcasts just today. 

With that said I'm still in the early learning/studying phase of REI, but I did have a question that I wanted to see if we could possibly get advice for.

We are currently renting in St. Louis city for $1300 and need to move as the 3-story just doesn't work anymore w the new baby. With that said, it seems like most everything that would be desirable for us in town is running $1400-$1500 a month.

We looked into buying last year (not even sure we want to do that though) but couldn't really get approved for anything worthwhile because, although my credit is great, we have combined 100k in student loan debt plus I'm self-employed so the tax return looks like we are at the poverty level. 

So in the end we feel kind of trapped and wanted to see if there might be any other angles we could check out that I might not have otherwise known about?

Thanks and looking forward to learning and growing from these great forums (sorry if this posted is in the wrong forum)!!!

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Bob Hines
Real Estate Investor · StL, MO · Member since 2008 · 294 posts · 152 votes
10y

$1400-$1500 for rent in St. Louis City? Really? That's your problem. Do you need granite and 4 bedrooms now that you have a baby? There are many great areas of town that you can rent for less than that and many good areas you can rent a house for nearly half of that (I know because I rent them out)!

If it's just you, wife & baby; a 2 bedroom apartment could easily be had for less than $1000 in Dogtown, west of Hampton, West of Kingshighway, Shaw, Holly Hills, Carondelet, St. Louis Hills, Tower Grove South, The Hill and all of those are great areas and a good place for a family. You could find many apartments for around $800 in most of those areas. If you want a house, you could probably rent a house for less than $1400 in in each of those areas as well. I have several houses in good parts of Dutchtown that border some of those great areas that rent for $750-$900.  

Safety is a feeling. Look at actual numbers and statistics. Come to the understanding that bad stuff can happen anywhere-randomness (even the County). And then you will realize there are actually few places in the city where bad stuff is common.

My guess, is that with your quote of $1400-$1500 for rent, is that big and/or trendy is important to you. The only way that trendy pays off in St. Louis is if you can walk or ride your bike everywhere and are saving $600-$700/month on not having car payments/insurance/gas/car repair expenses.

If you truly want to get into REI and out of the rat race, you're going to have to get out of the rat race and start saving money. Fortunately St. Louis offers a wide selection of affordable rental options.

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  • Gerald Harris
    Investor · Atlanta, GA · Member since 2013 · 922 posts · 336 votes
    10y

    1.  Seller financing!

     Find a motivated seller who would take a small down payment but would carry the rest of the loan.   There are always motivated sellers out there.    

    2.   Lease Option directly from a seller

    Find a seller who is motivated and would take a small down payment.   You can set up a lease with an option to buy the property.   

    Look in the "for rent" section of craigslist to find sellers who are motivated to do seller financing or lease option.   

    3.  Find a seller motivated to do seller financing on a duplex or triplex

    This 1 would work well.   you live in 1 and rent out the other units so that the renters are paying the bulk of the monthly payment ( make sure they and adjust to a new baby, that can be tough on both ends)  

    I have a baby on the way as well.   Going to a first time home buyers workshop this coming weekend so i can relate to what you are going through.   

    Good luck to you and your family

    Congrats!

    0Reply
  • Leigh C
    Brooksville, FL · Member since 2012 · 429 posts · 220 votes
    10y

    Lower your standards for the short term and invest in your business or pay down debt.    Buying isn't your solution at this time.   

    Home ownership can wait....Congrats on the little one, once it gets into the school years reconsider where you live and I hope the debt has gone down and the income up.     

    0Reply
  • Bob Hines
    Real Estate Investor · StL, MO · Member since 2008 · 294 posts · 152 votes
    10y

    $1400-$1500 for rent in St. Louis City? Really? That's your problem. Do you need granite and 4 bedrooms now that you have a baby? There are many great areas of town that you can rent for less than that and many good areas you can rent a house for nearly half of that (I know because I rent them out)!

    If it's just you, wife & baby; a 2 bedroom apartment could easily be had for less than $1000 in Dogtown, west of Hampton, West of Kingshighway, Shaw, Holly Hills, Carondelet, St. Louis Hills, Tower Grove South, The Hill and all of those are great areas and a good place for a family. You could find many apartments for around $800 in most of those areas. If you want a house, you could probably rent a house for less than $1400 in in each of those areas as well. I have several houses in good parts of Dutchtown that border some of those great areas that rent for $750-$900.  

    Safety is a feeling. Look at actual numbers and statistics. Come to the understanding that bad stuff can happen anywhere-randomness (even the County). And then you will realize there are actually few places in the city where bad stuff is common.

    My guess, is that with your quote of $1400-$1500 for rent, is that big and/or trendy is important to you. The only way that trendy pays off in St. Louis is if you can walk or ride your bike everywhere and are saving $600-$700/month on not having car payments/insurance/gas/car repair expenses.

    If you truly want to get into REI and out of the rat race, you're going to have to get out of the rat race and start saving money. Fortunately St. Louis offers a wide selection of affordable rental options.

    1Reply
  • Brandon Smotherman
    OP
    St. Louis, MO · Member since 2015 · 6 posts · 0 votes
    10y

    Thanks for the replies so far!

    So I guess at this point it would be more helpful to provide a bit more detail, so I apologize for not being more clear up front. 

    This will actually be baby number three (3 girls//so I'm also currently in the market to buy a male dog to help even things out for me). 

    Besides the three level floor plan not working for us anymore we also would like to be into a town with highly rated schools as our oldest just started kindergarten. 

    And yes we'd love to stay within what's called the 270 corridor where there's still easy access to the city, great schools and a community culture as opposed to complete suburbia. 

    In response to maybe us just having rich taste; I can completely appreciate that question. While we really strive to be disciplined and live a minimalistic lifestyle (drive used cars/no cable/don't eat out frequently etc); our pickle is that if we are going to have to pay in the $1300-$1500 range anyways...is there much difference (of course we don't need high luxury at this point either) 

    And yes I'm sure we could find something tiny, dirt cheap w green countertops and pink bathrooms; as my wife is a stay at home mom, I just don't want her to have to hate the place where she spends a majority of her time w our children. 

    Well thanks again all for your time and input!

    0Reply
  • Eric P.
    South Jersey, NJ · Member since 2014 · 154 posts · 50 votes
    10y

    You sir are my hero.  My wife and I both work, our student loans are below $30k total, credit card debt just about totally gone.  We bank a fair amount of money and I have a few months bills worth of emergency fund.  We just bought our first home that is about 22% of monthly income and I am in constant panic!  I'm seriously building our emergency fund to 9 months of bills even though my wife works for the state, we're both W2 employees, and I have a 4 year nursing degree as a backup even though I work in business.  And we don't even have kids yet!

    My suggestion being a new home owner would be DON'T go by rules of thumb or percentages on your personal home.  The percentages really just don't work and never made sense to me as things like food, gas, childcare all cost the same no matter how much you make.  Someone making $150k a year spending 30% of monthly income on housing is still going to have WAY more disposable income each month than someone making $50k a year and only putting 10% of monthly income toward housing.  

    Remember when you buy you're really locked there cause you'll have to pay Realtor commissions when you go to sell, there really isn't an easy out without taking a financial hit unless you can rehab and flip.

    Make a tight budget and talk to a financial planner.  You guys have a lot of eggs in 1 basket and honestly, there is NO WAY I'd own a home in your situation, just sayin.. too much too lose if 1 thing goes wrong.

    0Reply
  • Brandon Smotherman
    OP
    St. Louis, MO · Member since 2015 · 6 posts · 0 votes
    10y
    Originally posted by @Eric P.:

    You sir are my hero.  My wife and I both work, our student loans are below $30k total, credit card debt just about totally gone.  We bank a fair amount of money and I have a few months bills worth of emergency fund.  We just bought our first home that is about 22% of monthly income and I am in constant panic!  I'm seriously building our emergency fund to 9 months of bills even though my wife works for the state, we're both W2 employees, and I have a 4 year nursing degree as a backup even though I work in business.  And we don't even have kids yet!

    My suggestion being a new home owner would be DON'T go by rules of thumb or percentages on your personal home.  The percentages really just don't work and never made sense to me as things like food, gas, childcare all cost the same no matter how much you make.  Someone making $150k a year spending 30% of monthly income on housing is still going to have WAY more disposable income each month than someone making $50k a year and only putting 10% of monthly income toward housing.  

    Remember when you buy you're really locked there cause you'll have to pay Realtor commissions when you go to sell, there really isn't an easy out without taking a financial hit unless you can rehab and flip.

    Make a tight budget and talk to a financial planner.  You guys have a lot of eggs in 1 basket and honestly, there is NO WAY I'd own a home in your situation, just sayin.. too much too lose if 1 thing goes wrong.

     Thanks Eric!!!

    I think I'm definitely going to take some more time to read, study and connect with people further along this road that we are before we pull the trigger on anything for sure!!!

    Blessings!

    0Reply
  • Brandon Smotherman
    OP
    St. Louis, MO · Member since 2015 · 6 posts · 0 votes
    10y
    Originally posted by @Gerald Harris:

    1.  Seller financing!

     Find a motivated seller who would take a small down payment but would carry the rest of the loan.   There are always motivated sellers out there.    

    2.   Lease Option directly from a seller

    Find a seller who is motivated and would take a small down payment.   You can set up a lease with an option to buy the property.   

    Look in the "for rent" section of craigslist to find sellers who are motivated to do seller financing or lease option.   

    3.  Find a seller motivated to do seller financing on a duplex or triplex

    This 1 would work well.   you live in 1 and rent out the other units so that the renters are paying the bulk of the monthly payment ( make sure they and adjust to a new baby, that can be tough on both ends)  

    I have a baby on the way as well.   Going to a first time home buyers workshop this coming weekend so i can relate to what you are going through.   

    Good luck to you and your family

    Congrats!

    Thanks Gerald and congrats on your addition as well!!! 

    0Reply
  • Maggie L.
    Property Manager · Saint Louis, MO · Member since 2015 · 186 posts · 76 votes
    10y

    Congrats on the new addition!

    When you looked into buying last year did you look into first time homebuyer resources?  I'm a real estate agent (South City) and I know there are a lot of good resources out there for things like optimizing the credit score or downpayment assistance e.g. MHDC http://www.mhdc.com/homes/index.htm , Justine Petersen http://www.justinepetersen.org/credit_building/cre....
    Fannie Mae also has some rules about including rental income that might make one of the duplexes ready for owner-occupants helpful for you as well.

    https://www.fanniemae.com/content/guide/selling/b3...

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