When does your salary stop becoming the only reason you get loans

13 Replies

Hi all,

I am one of those people who is trying to break into real estate investing as a way to leave a day job that I very much dislike.  However, I am finding through my talks with some lenders that, since I am still relatively new out of school and have multiple student loans (although I have great credit), my saving grace in terms of getting a loan to fund my first deal is the salary my day job pays me.

I know that real estate isn't a get rich quick scheme and that I will probably have to stick out my day job for a couple more years, but at what point do you see banks, lenders, etc. start to give you loans to fund deals without a steady stream from a corporate job? 

Thanks,

Dan

Originally posted by @Daniel Michael Knight:

Hi all,

I am one of those people who is trying to break into real estate investing as a way to leave a day job that I very much dislike.  However, I am finding through my talks with some lenders that, since I am still relatively new out of school and have multiple student loans (although I have great credit), my saving grace in terms of getting a loan to fund my first deal is the salary my day job pays me.

I know that real estate isn't a get rich quick scheme and that I will probably have to stick out my day job for a couple more years, but at what point do you see banks, lenders, etc. start to give you loans to fund deals without a steady stream from a corporate job? 

Thanks,

Dan

 I am going to assume you are just in your 20s based on your post. Do yourself a favor and stay in that job for a while, it will make it easier for you to qualify for loans. Also, please don't be foolish and think you can buy some rental properties and "retire" at 25 like some clowns I see on here. Your expenses will only grow as you get married, buy a house, have kids, buy a bigger house, etc. 

When you can't get any more conventional loans (10) and you are buying properties that cash flow, then you can go the commercial route or owner financing and at that point, it doesn't matter if you have a W2. Anything else is going to be a lot more challenging (although doable I am sure). 

@Daniel Michael Knight You've been given great advice by @Peter T. . I especially agree on the "clowns" part. 

I'm left scratching my head at the lack of basic arithmetic skills of the average posted who wants to retire by cash flowing the $100-150 from their 10-20 properties. Either these posters don't live in the US or plan on being homeless because the #s don't add up. 

Don't buy into the hype. There is a reason why corporate jobs are a guaranteed route to middle/upper-middle class. It doesn't sound exciting to say you work for a major corporation but your chances of long-term wealth dramatically go up when working within these corporations. 

You sound like you're just out of school. I would focus on building my skill sets, paying down debt , building a nest egg - savings, 401K, Roth IRA, etc - and continuing to educate yourself.

Your profile says you sell Oracle DB technology. Trust me, you will make more money from your corporate job in 5 years than the average poster here will make in their best year. 

You can still invest in RE while continuing to hold down your existing job. You can consider switching careers if your income dramatically exceeds your corporate income (highly unlikely in the next few years). You got a good things going. Relax and have a good time!

@Peter T.

Peter, thanks for the input.  You are correct - I am closing in 26 as we speak.  

I am not planning on retiring in my 20's, but I do hope to be able to have a couple rental properties by 27/28 that will cover my monthly expenses so that I can have more time to focus on things that inspire me.

I guess it would make sense to maybe try and switch day-jobs while saving and and paying down loans while growing real estate at night.  

However, don't commercial loans rely more on income and less on personal finances?

Daniel Michael Knight if you’re leveraging it’ll be 200 bucks a property if you’re doing single family of you’re lucky. Multifamily is probably closer to 100-150 a door.

I estimate it would take 1-2M of invested money to hit my cash flow goals. Of 150-200k a year. You’re not gonna hit that tomorrow or next year or the year after that.

Give yourself a minimum 10 years if not more like 20. That’s the reality of this game. Of course if you’re like me and eventually you just want to pay cash the amount of properties you need is much less, but you still need a lot of cash.

This assumes you have a corporate job and buy some rentals. If you own a business that expands exponentially this can obvious be much less but also much riskier.

Conventional loans look at the borrower income hence you need a job. The commercial looks at the properties income hence you don’t need a day job, but you need more money down and to close.

I’m 23, own 3 rentals almost 4. At minimum this will take me 12 years. My goal is retirement at 45. Hope this helps

@Daniel Michael Knight

When does you salary stop becoming the only reason you get loans

Great question, salary and down payment money are really important when it comes to Fannie/Freddy loans (amongst other things, there are a couple of metrics needed to underwrite) 

The loan limit is 10 at the moment, so to answer your questions, when you max out your loans with conventional money.

When working with local banks with portfolio loans, salary is not the ONLY reason you get loans with them: experience, net worth, equity, etc become important, and the most important I believe is relationship!

Stick out your job even a couple years extra than you plan for, I wish I would've worked an extra 1-2 years and got some amazing loans. 

Cheers!

Originally posted by @Daniel Michael Knight:

@Peter T.

Peter, thanks for the input.  You are correct - I am closing in 26 as we speak.  

I am not planning on retiring in my 20's, but I do hope to be able to have a couple rental properties by 27/28 that will cover my monthly expenses so that I can have more time to focus on things that inspire me.

I guess it would make sense to maybe try and switch day-jobs while saving and and paying down loans while growing real estate at night.  

However, don't commercial loans rely more on income and less on personal finances?

Commercial loans care about your net worth and if the property can service itself (DSCR). The bank DGAS if you make $250k a year but the property loses money. They won't lend.

What I laid out is my plan essentially. I get paid very well for my age in a corporate job I don't like and hustle my *** off doing REI on the side to build up my business (so believe me, I feel you). I plan on retiring in a few years but by "retire" I mean my passive income has replaced my W2 income + benefits and I am in my dream home already and have tapped out all the conventional mortgages I can get. Then I run my real estate business full time and keep growing my annual income.

Too many people on here are full of hot air about "retiring" and think that buying homes in 4-5% interest rate environments, with unemployment at sub 4%, no recession and no market pull backs is going to last forever. I plan to buy from those suckers when they're out on their *** in a few years because they didn't plan ahead.

Also I would add that if you want to buy more property, work more and earn more. I work on Wall Street, commute 3 hours a day and still have managed to grow a successful (and frankly exploding in growth) student rental property management business at Rutgers University on the side.  

@Daniel Michael Knight, I agree with everything everybody here has said.  Unless of course you want to flip houses.  Acquiring rentals only is a long term business plan that needs lots of cash and regular income.  Flipping houses requires far less cash and w-2 income is not necessary.  I have lots of clients that flip a few, hold one, flip a few, hold one.  

@Peter T. @Deren Huang @Mike Burkett

All, thanks for the input, I really appreciate it!

Deren - I agree, I think I will absolutely stick out this job or find a new one for the time being while I start down this road.

Peter - I 100% agree.  Retire to me doesn't mean kick back and stop working.  It just means my passive income can cover my bills so I can start focusing on things that I actually care about and building my business.

Mike - I especially like what you said about flipping a couple, hold one, flip a couple, hold one.  I think this makes the most sense for me at the moment as I have a good construction crew here in Austin at my disposal as well as a few hard money lenders that are willing to help.

Thanks again for all the input everyone!

Daniel Michael Knight so far I’ve only done single family. Multifamily will probably be in the near future.

I typically do zero rehab or minimal rehab.

Daniel Michael Knight

Allow me to stir the waters here but first of all YES I agree with "certain" things that have been said. I don't really like the awkward almost negative responses since in real estate there is no template it's completely up to you how far you go is based on how fast you move divided by your dedication multiplied by your ambition.  

I completely disagree with this "It takes time" and "Do yourself a favor and stay in school" attitude, not very motivating guys. 

I disagree because I and others around me as well have completely disregarded these sayings, rules or whatever you want to call it.

It's obviously not achieved overnight but you can raise some serious capital in just one year... 

think outside the box.

The beauty of real estate is exactly the FACT that YOU COULD RETIRE and build your dream life at a very, very, very young age. I've never been one to speak about myself so I will tell you that I have friends (some from wealthy families and others coming from poverty) that thanks to this industry, if they WANTED to could very easily retire making 5 figure incomes from their portfolios and they are from 24 - 34 years old. 

To answer your original question : NEVER.

They day you no longer need them, is the day the bank will come to you. Trust me.

Daniel you have to remember our generation is much more advanced than our parents and for that matter the previous generation of investors.

We have resources they never had starting out. Social media, technology you can reach people anywhere instantly use it to your advantage don't take it for granted. USE it ALL. 

I would suggest you expand your network, talk to wholesalers, hard money lenders, FIND INVESTORS and create joint ventures. I've known individuals that had the capital but just didn't have the energy to get into any other investments...BE THE SOLUTION, create your own opportunity. 

Understand what they want and find it.

Start thinking about how you want to structure your portfolio and what you will need for it to be done but in detail.

The fastest way to wealth is using leverage. Venture out into other investment strategies as well.

If you want that passive income find a deal run the numbers and go out and find an investor to fund it , the bank should be a plan B. You can manage it yourself or include a company management fee when you run your numbers. Find your goals, pace and build a system that works for YOU... Remember everyone's advice is based on their own experiences, accomplishments AND failures.

I hope this short run on, brought some inspiration and ideas to you!  My Point is Real estate gives back what you put into it... you'd be surprised how fast you can achieve wealth. Remember It's completely up to you how far you is go based on ....

how fast you move divided by your dedication multiplied by your ambition.

work smart NOT "MORE".

Best of luck,

-Andres