Hey there BP community. My name’s Tommy (36), currently living in NJ with a beautiful family. I’ve recently joined a few weeks ago but have been following the forums as well as the BP podcast for a little under a year. Books recently purchased waiting to be read!
We live in our primary home and own 2 vacation rentals/AIR BNB’s on the NJ shore and Stratton Mountain in VT, outright.
Without going TOO in depth during this introduction, I’ll explain what I’ve done. I started investing in RE when I was about 22. I had an uncle who worked mostly in commercial RE and brought me on as a “silent investor” on a couple of flips. If I knew then what I know now, I would have asked to be more involved in the process, asked more questions, learned more to be ahead of the game rather than act as a small time financier. One flip turned into two flips, which turned into a 1031 exchange taking all profits and directly investing them into a small commercial space which within 5 years, went under and I lost everything.
Moving forward, my wife and I bought our first home 6 years ago, always keeping real estate investing in the forefront of my mind, but thought it was the right thing to do to purchase our first home which was a single family. During the past 6 years, my career in the film/movie industry has treated us well and we've purchased 2 vacation rentals that both needed major rehabs and turned out to be great investments. Again, wish I knew more about BP and the BRRRR method then. We purchased the beach property in cash, rehabbed it, and began the AIR BNB process. Few years later purchased the VT property, cash, recently renovated it and will Air BNB it this coming season.
Recently, my wife and I made the decision (which set our RE goals back a bit) that we were growing out of our home and decided to purchase our "forever" house. No regrets, it's beautiful, everything we want but now it's left us with very little if no room at all to refi either rental property because of our DTI.
Everyone’s reasons for financial freedom are different. Mine are in line with many, especially @beardybrandon, who wants to live life to the fullest, doing what he wants, when he wants with his family, while simultaneously building wealth through RE. I’ve been a slave to the film industry for almost 18 years, working anywhere from 70-85 hour weeks, at all different times of the day. Financially, it’s funded our investments so far, but RE is the end goal and my way out of the film industry.
I'm looking to BP to further my REI knowledge and help me get back on the track of being a full time RE investor. This is my first step, posting here, and getting my message out to everyone about what I'm here to do.
What's your suggestion? Do I pay down my new mortgage quicker to gain more equity and decrease my DTI? Do I look to private money/hard money lenders? Keep buying other properties in cash?
I’m interested in obtaining more vacation rentals (one business), while also trying to obtain multi-family (2nd business). Starting with 2,3,4 units and expanding to larger apartment buildings.
Looking forward to meeting anyone and everyone on here!
It is hard to scale vacation rentals if I were you I'd go with traditional rentals. Your DTI won't change unless you make more money or you refi so you may be waiting a while.
To your question about what to pay down: typically the simple answer is to pay down your most costly debt. That is not usually your mortgage, which has competitive rates. Do you have credit cards or other loans you can pay down instead?
As the gentleman above mentions, paying down your mortgage does not, in and of itself, solve your DTI issue. You need to refi into a smaller loan, which carries its own costs as well.
Could also explore forming an LLC, which won't be limited to an individual's DTI.
Thanks for the response Dillon. We’re pretty good with our finances, don’t have any CC debt, 1 car paid off and the other a lease. All of our debt currently sits in our new home, as well as taxes etc for the 2 rentals that we own outright.
What benefits would there be to forming an LLC? I know a lot of investors do, even a different one for each individual property they own.
@Tommy Kerwick Jr. Sorry, I realize I wasn't very clear in my previous post.
What I'm really suggesting is that you take a route that doesn't require loans that underwrite you as the borrower and instead underwrite to the potential performance of a property, AKA a commercial loan. This would apply to any property above 4 units, since residential mortgages cannot be applied to any building of 5 units or more. Granted, this comes with its own challenges and demands, but if your biggest sticking point is your DTI, this is the most common sense way around it I would think.
Another thing I might try, were I in your shoes, is to strike up conversations with local community banks or other portfolio lenders whose underwriting standards are different from a standard mortgage lender who is planning to sell your loan to Fannie or Freddie.
Hope that all helps!
Great goals, drive and work! Love it when I hear a story like this, @Tommy Kerwick Jr. - when you do land those other units, it could be worth considering a shot at a software solution built for DIY landlords (1 - 15 units) to bring some automation to the rental management process, in turn, making things much much easier! More than happy to answer any questions that you might have about online rent collection options. Again, congrats on the successes thus far! Might dip into the vacation rental market myself this year. TBD!
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