Feeling overwhelmed and slightly defeated starting out

10 Replies

Hey everyone!

I'm hoping there are a couple people that are in my position or that have advice on moving forward. I have been self employed for most of my adult life. I make in the six figures right now, but taxes have always been an issue when it comes to borrowing. I bought a condo 3 years ago and have around $80K equity after all the closing costs. I'm looking to purchase an investment property and have around $100K liquid to use, as well as the equity in my current residence. IF I don't sell my condo, it will rent extremely easy and passes the 1% rule with flying colors. But living here has made me realize how cheap it's constructed, and how much I HATE the ridiculous HOA that goes up around 10% a year for some magical reasons.

My girlfriend isn't happy living here due to wanting more space, a yard, not having to go up 2 flights of stairs, etc. etc. and wants to buy a "forever" home asap, but is also opened to a house hack situation where we buy a fixer upper. Also, we are in the Portland Or. area so prices........suck. She has be pre qualed solo for just over $300K, I couldn't be on the application due to me owning a home already, and showing a very small amount of income in 2016 and now even smaller amount for 2017. Think sub $20k per year, this year is sub $10k in income. Which is great on one hand since I owe a very small amount of taxes, but sucks for financing. 

I was excited to get my taxes back and go directly to a lender with them to see my financing options. Well now my financing options seem to be zero with me showing so little in income. 

I guess I just don't know how the heck to proceed. I'm bipolar when it comes to selling my unit, one week I definitely want to sell and use the money to purchase a new home, the next week I feel stupid for even considering selling because I bought this property the right way and got a killer deal. Plus my initial thoughts for purchasing were strictly for a rental eventually, and I'm in a great A location next to so many things, and Portland has already started spreading out where I am and developing the area for huge growth. 

I feel like my best option is to continue saving until I have around $200K to purchase a property in cash. I just don't want to wait that long and am ready to start now. I just feel overwhelmed with picking the correct path and right direction to head. Sorry for the rant, I'm just hoping to get some out of the box ideas or to be called an idiot and to calm down :) Thanks in advance everyone!

Hey Josh - you're actually really close to where I am (Salem, OR). So first things first... Take a deep breath.

You have a ton to break down in that long post but let me ask you this.  What are the pro's and con's when it comes to KEEPING the condo?

Originally posted by @Josh Hackett :

Hey everyone!

I'm hoping there are a couple people that are in my position or that have advice on moving forward. I have been self employed for most of my adult life. I make in the six figures right now, but taxes have always been an issue when it comes to borrowing. I bought a condo 3 years ago and have around $80K equity after all the closing costs. I'm looking to purchase an investment property and have around $100K liquid to use, as well as the equity in my current residence. IF I don't sell my condo, it will rent extremely easy and passes the 1% rule with flying colors. But living here has made me realize how cheap it's constructed, and how much I HATE the ridiculous HOA that goes up around 10% a year for some magical reasons.

My girlfriend isn't happy living here due to wanting more space, a yard, not having to go up 2 flights of stairs, etc. etc. and wants to buy a "forever" home asap, but is also opened to a house hack situation where we buy a fixer upper. Also, we are in the Portland Or. area so prices........suck. She has be pre qualed solo for just over $300K, I couldn't be on the application due to me owning a home already, and showing a very small amount of income in 2016 and now even smaller amount for 2017. Think sub $20k per year, this year is sub $10k in income. Which is great on one hand since I owe a very small amount of taxes, but sucks for financing. 

I was excited to get my taxes back and go directly to a lender with them to see my financing options. Well now my financing options seem to be zero with me showing so little in income. 

I guess I just don't know how the heck to proceed. I'm bipolar when it comes to selling my unit, one week I definitely want to sell and use the money to purchase a new home, the next week I feel stupid for even considering selling because I bought this property the right way and got a killer deal. Plus my initial thoughts for purchasing were strictly for a rental eventually, and I'm in a great A location next to so many things, and Portland has already started spreading out where I am and developing the area for huge growth. 

I feel like my best option is to continue saving until I have around $200K to purchase a property in cash. I just don't want to wait that long and am ready to start now. I just feel overwhelmed with picking the correct path and right direction to head. Sorry for the rant, I'm just hoping to get some out of the box ideas or to be called an idiot and to calm down :) Thanks in advance everyone!

I have been there man, it gets better, trust me. I went a loooooong time in your situation and then I made a move in the market where all of my REI takes place and it all took off. If you want I can share some of what I have available that take all your cash and still generate you some money.

Hey Josh,

I think your very first step should be to evaluate your goals as it pertains to your girlfriend. Not to get all up in your business, but, you should think very very seriously about buying a “forever” home with someone other than a spouse. I know that’s not specifically what you were asking, however it’s is the first thing that stood out when reading your conundrum. It sounds to me like you and your girlfriend might have opposing goals and that could lead to more problems down the line and I have a feeling could be a part of the struggle you’re having right now. You asked for pointers on what to do, and I feel like that’s a great place to start so you can both be in agreement moving forward. If you aren’t an agreement moving forward, you could be on a very slippery slope. Being in agreement on whatever the next step is will be the best decision, regardless of what it is. Wish you all the best!

@Josh Hackett Definitely run the numbers with the condo you have right now. If you're not in the green, I'd sell. Especially with HOA going up yearly. Have known other real estate investors in your situation regarding condos and HOAs. Many sold and went back to buying properties without HOA fees. Good luck with your decision!

I would be careful about buying a new property with your gf unless you plan to marry her. It is much more complicated to break up when you own real estate together.

If you bough the condo well I would sell and reap the profits. As a rental, A class, I would not bother. Concentrate on investing in multi unit purpose built B class properties. Do not go into a forever home until after you are married. If you do not marry you will need legal separation on your investments going forward.

Based on your self employed income I would strongly recommend you get a job that will assist in your investments going forward. Your income is so low it appears as though you are simply avoiding the responsibilities of working for a living. I believe it is time for you to make some definite changes if you are serious about investing in real estate. Financing requires a job, paying cash is a waste of your money, the returns will be so low it is not worth the effort and you would be farther ahead putting your money into a income fund rather than real estate. Real estate investing has very low returns unless you leverage.

The reality is that if you want to be a successful investor you must position yourself appropriately. Everything in your life must be geared in that direction as with any carer choice. Half way does not cut it.  

forget about real estate all together use your 100k and buy a business that you can run and make 30 to 75k a year in.

a food cart  coffee cart any number of small business that you can purchase for 100k.. you will do something for income and you will make far more money being your own boss than any rental will Ever bring you.

Originally posted by @Jay Hinrichs :

forget about real estate all together use your 100k and buy a business that you can run and make 30 to 75k a year in.

a food cart  coffee cart any number of small business that you can purchase for 100k.. you will do something for income and you will make far more money being your own boss than any rental will Ever bring you.

If I was taking Jay's advice I would consider opening a pawn shop (depending on your state). It is a no-brainer business (you never see them go broke) and some states allow tremendous profit potential (FL allows 304% APR). BTW-50K is the required amount of liquid assets to open in FL. States vary-and states like TX are much harder to get licensed in and require (as my memory serves me) 250K liquid per location to get licensed. The main reasons I am not in the pawn shop industry today is I don't want to stand behind a counter 8-10 hours a day and I don't want employees! I just applied for SS and I want easy money:)

@John Thedford   in our market any sub trade or service type business is flourishing.. America was and is built on small business.. rentals are for when your small business is making excess money and then you invest.. not have limited money and think real estate is going to carry the day..  you can do that in the mid west or other low value asset areas if you want to scale up and be a landlord for a job.. you see that a lot.. but not on the west coast.. waste of time in my mind unless as stated your simply investing your small business or professional fee's or other money you make in your day job.

@Josh Hackett   If you want to follow @Jay Hinrichs advice, do a search for local business brokers.  They will typically have a list of businesses available for sale.

Be sure that you have a good CPA go over the claimed numbers with you.  It's very common for small business owners to understate their expenses and overstate their income.

The overstatement usually is in the form of "We don't run everything through the cash register", especially in a cash business.  You should be able to compare claimed sales against vendor invoices as a quick means of forensic accounting.  If the seller claims that he sold 1,000 framis rods, you should be able to see the purchase on a paid invoice to Framis Rods International.

However, do NOT pay for sales that didn't get reported.  If it's not on a tax return, your position should be that it never happened.

Remember that the business broker is not your fiduciary.  His loyalty lies with the seller.  

If it's a retail operation, park outside and get a look at the foot traffic.  Is it as busy as the seller claims?  Then go inside as a customer.  Is the facility well maintained?  Clean?  Friendly employees?

Then go check Yelp, Facebook and Google for reviews.  See what others say.  One or two bad reviews are probably not a big deal, but 10 might be.  A big portion of the sale price of the business is what's know as "good will".  (Sale price minus assets, minus inventory)  Good will is easily damaged by a rogue employee or crazy customer.

Good luck!