What Would You Do? Frustrated Young Investor...

[Clay Manship]

I am 23 years old. And I wish I wasn't. I am an aspiring buy and hold investor, and have already closed on my first property. I make $50,000+ annually, have a 720+ credit score, and no debt. But I am stuck. Here is why:

-I closed my first property on a conventional fixed rate mortgage, 30/30. It was a Fannie Mae loan, and since I closed on it in October, lending parameters have changed so much that no bank will allow me to conventionally purchase an investment property.

-Because I am 23, no portfolio lender will lend to me either. ALL that I have spoken with require at least three (3) years of tax returns indicating a stable job before they pre-qualify me for a loan. They also want to see real estate investing experience, which I can't get due to not qualifying for a conventional mortgage on an investment property.

-Sellers are unwlling to accommodate reasonable seller financing terms with me due to my 1) lack of real estate experience and 2) only having worked in a corporate job for 8 months.

I see you all with multiple properties and questions every day and I envy it so bad. I feel like I am stuck at a glass ceiling that those who are not entry level investors right NOW are unable to see. How do I break through? Any creative strategies? I hope that this post is not misconstrued as whining, because I have been exploring every avenue possible.

For those of you who have been here, please help me break through. I am excited to make this a career, and I was told that my first deal would be the hardest. Just isn't the case right now. Would appreciate any advice. Thanks to all...

[Shawn Holsapple]

Originally posted by @Adrian DeGraff:

Originally posted by @Shawn Holsapple:

@Clay Manship - I'm jealous at the fact that you have a 20+ year head start on me.
I've found the local small State banks and credit unions being open to helping us investors out.

To get around the needed 25% down one needs - I use private lenders to purchase the property for cash [yes, they are out there] and then do a refi base on 75% LTV of the APPRAISED value instead of purchase price. If you are buying correctly [which I know you are] then you should be able to pay off your private lender and fund the entire project with "no money down". I've done this several times and it works great.

Just so I'm on the same page here. (Cause that's one hell of a magic trick....)

You'd effectively have to find a property with an appraised value of 125% over the foreclosure amount and then you'd start paying a 30 yr mortgage with no equity, but outside the loan, closing costs, etc. you didn't actually pay for the property?

In general, I understand the frustration Clay is facing. Either you have the net worth to start making moves immediately towards building a portfolio or you don't. Most young people fall into that latter category. And yes, you can get creative, but a couple of wrong moves could do years of damage to your credit.

Yes, I believe you have that correct.

Here's a real world opportunity I just completed:

• Purchase price - $27,000
• Rehab - $10,000
• Private lender fees - $1,500 [$750 per month for 2 months]
• Total invested - $38,500
• Appraised value after rehab - $53,500
• 75% LTV loan from bank - $40,125
• $40,125 - $38,500 = $1,625 equity back in my pocket [tax free by the way]

Most banks will only do a 20 or 15 year "commercial" loan on non-owner occupied homes. My payment is about $230 @ 5.5% APR. Gross rent is $775.

Otherwise, I would have only been able to get 75% of the purchase price $20,250 and that would mean I would need to come up with $16,750 out of pocket. I don't really like that option!

Plus, the private lender loves me because he just made more in 2 months than he normally makes in 2 years on his money.