Good tax returns but no job while in grad school

Private Lending & Conventional Mortgage Advice
2yFollow

Good tax returns but no job while in grad school

Jack Miller
Member since 2024 · 3 posts · 0 votes

Hello, I am looking to buy my first property (most likely an investment fourplex), but just left my job to start a grad program. Prior to this, I had 2 years of good tax returns from 1 stable job as well as my side business. 

Now that I am in grad school I cannot work due to program guidelines and time, but am still wanting to buy an investment fourplex that can build me some equity to offset these ridiculous student loans. After grad school I anticipate starting salary of 300k+, but will have 200k student loans which will only delay/limit me from starting my real estate investing journey.

I have enough saved for up to 15% down payment on a fourplex around 450k, but dont want to go hard money lender/dscr as they are currently in 7-9% range. Is there any type of conventional/portfolio loan I can pursue? Or if you have any feedback please give me input. I just hope I can leverage my tax returns somehow, and my future career prospect but I really don't know.

Thank you all in advance!

0Reply
28 views

Most Popular Reply

Erik EstradaBusiness Member
Lender · Member since 2022 · 6k+ posts · 1k+ votes
2y
Quote from @Jack Miller:

Hello, I am looking to buy my first property (most likely an investment fourplex), but just left my job to start a grad program. Prior to this, I had 2 years of good tax returns from 1 stable job as well as my side business. 

Now that I am in grad school I cannot work due to program guidelines and time, but am still wanting to buy an investment fourplex that can build me some equity to offset these ridiculous student loans. After grad school I anticipate starting salary of 300k+, but will have 200k student loans which will only delay/limit me from starting my real estate investing journey.

I have enough saved for up to 15% down payment on a fourplex around 450k, but dont want to go hard money lender/dscr as they are currently in 7-9% range. Is there any type of conventional/portfolio loan I can pursue? Or if you have any feedback please give me input. I just hope I can leverage my tax returns somehow, and my future career prospect but I really don't know.

Thank you all in advance!


What is the interest rate of the $200k in student loan debt? I would recommend holding off until you start making $300k +. You can use your college degree as work history and your most recent paystub as qualifying income. If you have a high DTI ratio because of the student loans, you can still qualify with up to 56.99% back end DTI on an FHA loan.

15% down will not be enough for a DCSR or Hard Money loan based on your circumstances. Lenders in this space require a minimum of 25% down + closing costs for a first time investor, first time homebuyer. On top of that most lenders require you to show  6+ months of reserves. 

In this scenario, you will benefit more by holding off to qualify for a standard primary residence loan and house hacking. 

[email protected]818-269-7983
LuxePrivate Investments LLC 572 Reviews
WebsiteView Page
1Reply
See this reply in the discussion

9 Replies

Jump to latestLatest
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    2y

    Do what you can to keep the cost of student loans down.  Are you planning on living in one of the units? If not, you often need 20% down. How much can you borrow and do you have someone who could co-sign a loan?

    0Reply
  • Jack Miller
    OP
    Member since 2024 · 3 posts · 0 votes
    2y
    Quote from @Theresa Harris:

    Do what you can to keep the cost of student loans down.  Are you planning on living in one of the units? If not, you often need 20% down. How much can you borrow and do you have someone who could co-sign a loan?


     I can maybe make it up to 20% and no cannot live in the unit

    0Reply
  • Patrick Roberts
    Lender · Charleston, SC · Member since 2019 · 1k+ posts · 1k+ votes
    2y

    DSCR is your best bet. It will be extremely challenging to get a conventional/govt/portfolio loan for residential RE on your own without current income, and less than 25% down worsens this outlook. There are some crazy, super complex strategies that could theoretically work, but it's a long shot. For a DSCR, at 85% LTV (15% down), your rate is going to be 9%+ for the most part. Ideally, you'd want to be no more than 75% LTV, and 70% is better.

    If you don't want a DSCR loan, your next best option will be to partner with someone with good credit and enough income to qual. Even with private/seller financing, if you're househacking, the lender will still be subject to the ATR rule and ignoring this will cause problems for everyone. Income is a basic requirement for any kind of Conventional/traditional loan.

    As far as rates, pretty much any 30yr residential investment property mortgage anywhere near par at 85% LTV is going to be north of 7%. With a househack, you could possibly get low 6's with a buydown or a sweetheart deal, but I wouldn't plan on it. If househacking with less than 20% down, you'll also have MI stacked on top of your rate. Long story short, 7%+ is just where the market is at right now.

    In your shoes, it might be simpler to stay focused on grad school and use your cash to lend to other investors or take an LP role. 

    0Reply
  • Jack Miller
    OP
    Member since 2024 · 3 posts · 0 votes
    2y
    Quote from @Patrick Roberts:

    DSCR is your best bet. It will be extremely challenging to get a conventional/govt/portfolio loan for residential RE on your own without current income, and less than 25% down worsens this outlook. There are some crazy, super complex strategies that could theoretically work, but it's a long shot. For a DSCR, at 85% LTV (15% down), your rate is going to be 9%+ for the most part. Ideally, you'd want to be no more than 75% LTV, and 70% is better.

    If you don't want a DSCR loan, your next best option will be to partner with someone with good credit and enough income to qual. Even with private/seller financing, if you're househacking, the lender will still be subject to the ATR rule and ignoring this will cause problems for everyone. Income is a basic requirement for any kind of Conventional/traditional loan.

    As far as rates, pretty much any 30yr residential investment property mortgage anywhere near par at 85% LTV is going to be north of 7%. With a househack, you could possibly get low 6's with a buydown or a sweetheart deal, but I wouldn't plan on it. If househacking with less than 20% down, you'll also have MI stacked on top of your rate. Long story short, 7%+ is just where the market is at right now.

    In your shoes, it might be simpler to stay focused on grad school and use your cash to lend to other investors or take an LP role. 

    Yea I hear you and that is the consensus I have arrived at. I was hoping there maybe some special portfolio loan that may work but I may get a cosigner if all else fails. Do you think at 7% DSCR it is even worth it, considering the fourplex will essentially just pay off its own mortgage + taxes and not have any leftover? 
    0Reply
  • Patrick Roberts
    Lender · Charleston, SC · Member since 2019 · 1k+ posts · 1k+ votes
    2y
    Quote from @Jack Miller:
    Quote from @Patrick Roberts:

    DSCR is your best bet. It will be extremely challenging to get a conventional/govt/portfolio loan for residential RE on your own without current income, and less than 25% down worsens this outlook. There are some crazy, super complex strategies that could theoretically work, but it's a long shot. For a DSCR, at 85% LTV (15% down), your rate is going to be 9%+ for the most part. Ideally, you'd want to be no more than 75% LTV, and 70% is better.

    If you don't want a DSCR loan, your next best option will be to partner with someone with good credit and enough income to qual. Even with private/seller financing, if you're househacking, the lender will still be subject to the ATR rule and ignoring this will cause problems for everyone. Income is a basic requirement for any kind of Conventional/traditional loan.

    As far as rates, pretty much any 30yr residential investment property mortgage anywhere near par at 85% LTV is going to be north of 7%. With a househack, you could possibly get low 6's with a buydown or a sweetheart deal, but I wouldn't plan on it. If househacking with less than 20% down, you'll also have MI stacked on top of your rate. Long story short, 7%+ is just where the market is at right now.

    In your shoes, it might be simpler to stay focused on grad school and use your cash to lend to other investors or take an LP role. 

    Yea I hear you and that is the consensus I have arrived at. I was hoping there maybe some special portfolio loan that may work but I may get a cosigner if all else fails. Do you think at 7% DSCR it is even worth it, considering the fourplex will essentially just pay off its own mortgage + taxes and not have any leftover? 

     Whether or not 7% make or breaks the deal depends on the cap rate and the specifics of the deal. The combo of the current rate environment, the current prices of most properties, and the current rental market makes cashflow much more difficult these days that it was a couple years ago. This especially true at high leverage (85% in your case). 

    My questions here would be around the anticipated appreciation and any potential for improvements - either forcing appreciation or increasing rents. If the property basically breaks even and you can't force improvement in NOI or value, then the bulk of your return will come from market appreciation (and potentially any tax advantages). In other words, if you invest your cash in the property today and receive virtually no cashflow from it, will there be a sufficient return from just the expected appreciation over whatever investment horizon you have for this property? Equally important - would this return be greater than your other alternatives, such as the equities market, private lending, investing in a private fund, etc, once you account for the work and risk? Lots of unknowns here, but this is the thought the process I use when analyzing opportunities.

    One thing I would not do, however, is buy solely because you're counting on being able to refinance into a lower rate in order to become profitable. Contrary to popular opinion, I don't see us going back to yesterday's rate environment, and I'm not anticipating being able to obtain investment property financing at sub 6% at any time in the near future without heavy buydowns. 5-7% is the historical norm for mortgage rates - it's not like 7% for an investment property is outrageous or shocking, and this is the ballpark I use to underwrite my deals. 

    0Reply
  • Erik EstradaBusiness Member
    Lender · Member since 2022 · 6k+ posts · 1k+ votes
    2y
    Quote from @Jack Miller:

    Hello, I am looking to buy my first property (most likely an investment fourplex), but just left my job to start a grad program. Prior to this, I had 2 years of good tax returns from 1 stable job as well as my side business. 

    Now that I am in grad school I cannot work due to program guidelines and time, but am still wanting to buy an investment fourplex that can build me some equity to offset these ridiculous student loans. After grad school I anticipate starting salary of 300k+, but will have 200k student loans which will only delay/limit me from starting my real estate investing journey.

    I have enough saved for up to 15% down payment on a fourplex around 450k, but dont want to go hard money lender/dscr as they are currently in 7-9% range. Is there any type of conventional/portfolio loan I can pursue? Or if you have any feedback please give me input. I just hope I can leverage my tax returns somehow, and my future career prospect but I really don't know.

    Thank you all in advance!


    What is the interest rate of the $200k in student loan debt? I would recommend holding off until you start making $300k +. You can use your college degree as work history and your most recent paystub as qualifying income. If you have a high DTI ratio because of the student loans, you can still qualify with up to 56.99% back end DTI on an FHA loan.

    15% down will not be enough for a DCSR or Hard Money loan based on your circumstances. Lenders in this space require a minimum of 25% down + closing costs for a first time investor, first time homebuyer. On top of that most lenders require you to show  6+ months of reserves. 

    In this scenario, you will benefit more by holding off to qualify for a standard primary residence loan and house hacking. 

    [email protected]818-269-7983
    LuxePrivate Investments LLC 572 Reviews
    WebsiteView Page
    1Reply
  • Colleen F.Pro Member
    Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
    2y

    @Jack Miller you aren't going to want to hear it but just wait. Frankly if you are looking at 300k+ to start you could live off 100k of that and pay off those loans when you get out then start buying real estate. What is the hurry? If you buy you won't have reserves of money or time if something goes wrong. It would be different if you were looking at this for housing too but it sounds like you aren't. You made a choice to go to grad school go with that choice now and leave real estate for later. 

    0Reply
  • Gregory SchwartzBusiness Member
    Rental Property Investor · College Station, TX · Member since 2016 · 1k+ posts · 1k+ votes
    2y

    House hack a 4-plex with a co-signer. At least that's what I did. No job, great credit and 20% saved up. I purchased a $280k fourplex and it changed my life. 

    ** Your results may differ. Consult your risk tolerance before making any real estate purchase decisions. Greg Schwartz is not liable for the stress from difficult tenants, late-night rehabs, or cockroach infestations.** 

    [email protected]443-812-0357
    Schwartz Realty Group5117 Reviews
    WebsiteView Page
    0Reply
  • Jacob Sherman
    12 Penns Trail Suite 138 Newtown, PA 18940 · Member since 2023 · 1k+ posts · 319 votes
    2y

    There are some lenders that accept a first time home buyer under the DSCR program but not many

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free