Hi BP Community! I'm new to BP and am excited to read the posts, attend the webinars, and quite frankly to get started! I currently own a home that is getting to be too small for my family. I also have friends who are in a cramped apartment who are looking to move into something bigger. See where I'm going? So, I would love to rent out my house (they are fully onboard), however I don't have enough cash (yet) to carry two mortgages. I was told I would have to show them renting at that address for two years prior to being able for lenders to not count it (the mortgage) against my debt-to-income ratio. Then a friend who introduced me to BP stated I only needed to show one month's payment. I live in NJ.
Can someone clear this up for me? Also where is the best place to put the reserve money so that I can use this for another house (or property)? The bank? In stock? In an IRA? I would like this money to grow quickly too!
Are there other aspects in this line of thinking that I should consider? Like I said I'm new at this, so while in this planning stage, I'd be appreciative of all the help I can get!!
Thanks in advance for your guidance!!
@Monique Cook Some banks do require 2 year to be able to claim the rental income, some do not, so I would call around. You may also run into issues buying a second home in the same general area, if you dont have 20% down, as some/most banks will see this as you trying to buy an investment property, not a new house for yourself (regardless of what you tell them). Talk to local banks and explain what you want to do, and work with them.
For the reserves question, any cash or liquid asset (including retirements accounts) can be used as reserves.
I would also make sure that you can rent out your house and actually make money when you factor in all your costs, including maintenance, capex, vacancy, etc. BP has some nice calculators to help with figuring out the numbers.
I would absolutely caution you against renting to friends or family. This is business, and renting to friends or family will complicate things. I rented to a friend once and it changed our relationship, and not for the better.
Thanks Mike! Definitely great advice (re: banks and friends)! One other question - my home was purchased under a conventional home loan. Would this be the best/primary way I should look at purchasing other rental properties?
@Monique Cook Purchasing additional properties that you do not intend on living in (owner occupy) would be an investor residential loan (assuming you have 10 or fewer mortgages). Similar 30yr terms, but higher slightly higher interest rates, and 75-80% maximum LTV (loan to value). Cash out terms would have higher rates and lower LTV's.
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