Do I stand any chance of getting Fix & Flip / STR Purchase Financing?

[Jason Eyerly]

Hey folks,

So, I've worked hard over my ten year absence on BP. I'm getting my RE license again to jump back in. My work schedule only requires that I work two 24 hours shifts every 8 days, so I have some downtime. I'm in Wichita, KS so not the best market but it'll make do for now. My target market for fix and flips would be around this area or in Charleston, SC (greater area) and the latter for STR. I know the low country very well. I've paid off all my credit cards, collections (the one remaining should be deleted this month) but my score still sucks due to late payments. Almost all of which were incurred after the sudden passing of my father and me incurring all of his debts and mortgage to keep the estate afloat. Still waiting on final numbers from probate attorney to see if I sell his house or pay the remainder of his debts or try to get an FHA loan to buy his house from the estate ($2,500 a mortgage makes me nauseous). Anyways, I want to purchase an STR as I'm just jumping into REI I need the cashflow to grow. Or, I thought about fix and flips. Is it even possible for me to get financing with my credit profile? Income is consistently 120/130k+ each year.

[Patrick Roberts]

Quote from @Jason Eyerly:

Quote from @Patrick Roberts:

Start working on your credit asap. There are a few hard money lenders who will lend without considering your FICO, but any kind of traditional or long-term financing options are off the table with a FICO sub-580. Realistically, you want to be above 680 for most permanent financing for investment properties (like DSCR loans) to be reasonably priced.

Vantage 3.0 (the scoring model shown in your images) is OK, but it tends to lack a lot of detail. I have found that MyFico.com is a pretty solid tool for tracking/evaluating personal FICO info. It shows you all of your trades and your FICO 8 (I think) scores, which are similar to FICO 2/4/5 used in mortgage lending. It also has a simulator tool that can help you understanding what levers to pull to increase your score. 

Regarding your comments about a $2,500/month payment, I would caution that you should reflect on your mindset about this. This is roughly the starting point for most mortgages today. Expecting anything sub $2,000/month is not realistic unless youre buying a very cheap house or bringing a large downpayment. Most rents are approx $2,000+/month now as well. This is just a fact of life thanks to inflation from the past five years, and I dont see where it's going to improve.

It sounds like you have solid income, so I would work on socking away as much cash as possible. Until your FICO has meaningfully improved, any flip projects will only have one exit path - selling the property - as most take-out financing options wont be available. You'll want to be conservative given this fact, which means lower leverage on the project and more cash/reserves to give yourself a cushion. Flips are much more risky right now due to the current RE market environment than they were a few years ago. At this point, I'm talking to either a borrower or another lender who is dealing with a distressed flip project literally every day. I had a conversation over lunch yesterday with a private lender here in CHS that is about to take back a local failed flip where the borrower's entire stake will be wiped out, and there will still be a deficiency owed to the lender. 

Based on your post, you have time (several off days each week) and good earning capacity, so overall you're in good shape. Once you get your FICO back in order, you should be in a pretty good position to take down some deals. If I was you, I would spend the next few months networking and building relationships with other RE investors/professionals, repairing credit, and building up cash reserves. Play the long game - dont get in a hurry. 

I figured I can apply my days off to dabbling in the RE markets in Wichita or if I relocate soon the greater CHS area. It seems nothing is ever going to work out for me to have the time/credit/money to get into real estate so I want to do something soon. Check out the above comment and let me know what you think - keeping the house, renting it, and using FHA to get my own actual house. I'm hoping when this last collection comes off sometime this month I'll be +600 but I have a significant cash reserve right now. If the market is that bad I'd be happy just hacking an FHA of my own, selling dads, and focus on growing my plan B career (commercial aviation) because healthcare is brutally exhausting.

Real estate investing is no different than running a business. You cannot be emotional about decisions. This is incredibly hard to do, but it is what it is. There are two decisions to be made regarding your dads house - one is emotional, and one is economic. I dont have enough facts about the economics of the house at this moment to speculate on a best path, but it's clear that the emotional aspect is impacting your judgement. The first step is to acknowledge this and give this fact weight in your calculus going forward. 

Pertaining to the credit score matter - the images I saw indicate that late payments/derogatories are what brought your score down. There are some tactics involving goodwill letters, challenges/disputes, and paying off collections that will move you in the right direction, but ultimately, time and consistency are the cure for this. Your score is likely to slowly improve over time with good performance on the existing trades. Again, it is what it is. 

Slow is smooth, smooth is fast. Identify where youre trying to be in ten years, then work backwards from there. This will help guide you on the best short run actions.