Help with my limiting belief

10 Replies

I am moving to Charleston, SC in about 3 months. I am also looking to start RE investing asap. My limiting belief right now is that I won't be able to buy a personal residence if I purchase rental properties between now and then. This is based on not being able to get financing after recently financing rental properties.

More specifics: I live 4 hours away from Charleston in GA. I purchased the house we live in 3 years ago with a VA loan, about 90% financed right now. No rental properties at this time. I have some cash for down payments, and I am setting aside cash for 20% down on my next residence. I will be retiring from the military after the tour in Charleston and I'm trying to make up for my change in income when I start collecting my retirement pay. I want to invest in the Charleston area, and I'm trying to overcome my limiting beliefs.

Any help would greatly be appreciated.

Hey James!  I don't have any financing-specific advice for you, but I did want to give you kudos for identifying your limiting belief and reaching out to update it.  Those things aren't easy to do.  I look forward to hearing about your inevitable success, with those psychological tools at work!

@James Meador , have you checked your VA loan limit? Afaik, you can buy a second primary home with it, so long as the total of the two mortgages is within that limit. Alternatively, you could sell your primary, and start again, right? Any particular reason why you'd be stuck on the idea of keeping your current one (seeing as you've gained little equity over the last three years)?

My usual advice is: think of your next primary purchase as if it was going to be solely as an investment, relying on the bargain price you (should) buy it for, and its value-adding opportunities that are also envisioned by you, and the future appreciation of its location.

ie. If it's not already worth more than you're paying, and has further potential, and is in an up-and-coming area, why would you be interested in buying it? Get my drift? Think like an Investor!

That same mentality will stand you in good stead, regarding buying pure rentals too!

Thank you  for your service. All the best...

Thanks for the replies!

The remaining amount on my VA loan is not enough to purchase a residence, but thanks for the advice. My wife and I have been working on whether it would be beneficial to rent out or sell our current home. We wouldn't make much if we sold it and we would be close on the rent, but the equity buildup over time with a renter is tempting. It was new construction when we bought it.

I am definitely looking at our new house as an investment, thanks for the pointers.

What did you purchase your house that you currently own with a VA loan for? You will be surprised what you can buy with the tier 2 VA loan. if you go over the limit you only need to guarantee 25% of it. I am currently using a tier 2 VA loan to purchase a 3 family, I used my first VA loan to buy a 2 family. @James Meador

Hey @James Meador , are you talking about limiting belief or a maxed out debt to income ratio? I would like to hear more specifics about your situation, are you saying you weren't able to get financing on rental properties or you are afraid you won't be able to finance your home if you purchase a rental property?

I think its wise for you to start building your portfolio while you are still in. We had a lot of friends that built their own portfolios by purchasing a new home at each duty station and we also started building our portfolio while my husband was in USN.

Have you talked to a lender about refinancing out of your VA and into a conventional loan with your current home so you can use the VA when you move to CHS? If you did that, including equity, how much would you need to put down in order to refi?

—>Military can get capital gains benefits by living in a house for 2 years out of TEN years, which makes it beneficial to hold that house, as long as you expect there to be capital gains over 10 years. Ask yourself if inflation is likely over 10 years.
—>Owner occupied housing is easier to obtain than investment property. Buy your investment properties, and move forward to your next primary residence. Investment loans get more difficult when you get over 4 (w some lenders) or 6 (w other lenders) which means higher interest rates and higher down payment requirements. Get those “easy” loans now.
—>You could keep moving forward into a new conventionally mortgaged owner occupied house one time a year, turning the last one into a rental for a verrrrrry long time. Not so with investment mortgages. Over 10 means commercial or portfolio mortgages.

@Jennifer S.

So I am concerned with maxing out debt to income ratio, since any income property I obtain would not have a long history of income. I am afraid that purchasing income properties would preclude me from obtaining a mortgage for my primary residence when we move. 

Refinancing my current home might be an option to make the VA loan available.

@Jessie Tetreault

We have just under $200K tied up in the VA loan, and looking at houses in the $225-250K range in Charleston area. I believe the limit is $400K so it could be tight especially with our expensive taste in homes pushing our range to $275 on occasion as we look at properties to live in.

It is possible that the house we are currently in is worth $220-240K.

@Kerry Baird

Wow, information overload, great ideas! I like the idea of moving every year, we actually have talked about that. We are handy people as well, so a 1 year live in BRRRR is something we are also looking at.

I have also heard of the 203K loan, but the work has to be done by contractors. Are there any creative methods of being the contractor for one of these?

@James Meador , I see what you're saying. Great news! You can get a conclusive answer from a lender. Some lenders don't need a history of income on a new rental property, they will just use 75% of the income instead of 100%. Additionally, some lenders won't count an income property against your DTI, as long as 75% of the income covers your mortgage, etc. Start calling lenders and if you need any recommendations feel free to send a DM.

@James Meador As long as you've had the rentals for more than 2 years, they will be considered and asset and not a liability. If you've had them for less than 2 years, they will consider them a liability and they will be counted against your DTI. At least, that's how it was the last time I bought a new primary residence. Also, that's only with loans that must adhere to FNMA/Freddie Mac underwriting criteria. There are plenty of loans you can get for SFDs that are more commercial and will not be treated the same as a residential loan that must adhere to Dodd Frank and other legislation. They're more expensive than the traditional route, but much easier to close as long as you have your 20% and decent financials. Also, if you're planning to use your VA again, they will only allow you one active VA loan at a time. You'd need to refinance the other or use a conventional loan for your new primary. You also don't have to put down that 20% for a primary residence. You could do 5-20%, but you will have PMI. However, you can use what you save to buy more rentals but they will require 20-25% down since they will not be your primary residence. Just get in touch with a mortgage lender and begin a conversation with them now. They'll pull your credit and look at your financials to tell you what they can do. There's no obligation if you reach out. The only con is that they will need to pull your credit, but someone will have to eventually. I have a great mortgage lender here in Charleston, if you'd like a referral. She's a broker and can get a lot of different products. She also owns rentals and is very familiar with those rules.

@James Meador , as a gentle reminder, when you wrote "with our expensive taste in homes pushing our range to $275 on occasion as we look at properties to live in", you do see how that looks like you're not thinking like an investor, right? 

(After all, you did vote for my "think like an investor" comment).

Having expensive taste is fine, but, if you pay for it up front, how will that get you ahead?

That's suspiciously like: thinking like a consumer, not an investor! 

Answer? Buy the worst house in the best street! Then later, value-add like a Flipper!

To Kerry's point about capital gains, there were plenty of buyers back in 2007, and many of those homes are STILL valued at less than they paid for them (ie. ten years later)!

Also, you wrote: "any income property I obtain would not have a long history of income", but my question is: why? There's lots of properties that do have good rental history! Cheers...

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