Beaverton, OR · Member since 2014 · 118 posts · 119 votes
I've got 30k set aside to invest and would like BP's advice and what to do with it. For some background, I bought a 4plex using a 3.5% down FHA loan about 5 months ago and live in one of the units. It cash flows well at this point (assuming I'm paying the same rent that the others do). I have a steady job and am able to save about $1,250 a month on average. My goal is to build a passive income that covers all my living expenses as quickly (while not being stupid-risky) as possible. Should I continue saving for years until I can buy another plex at 25% down, pay down my existing loan at 4.25% interest, buy a house as a 2-year flip, or is there a better idea out there? I live in Portland, OR, and even a 2 bed/ 1 bath house will run around 200k or more, even in the suburbs.
Aurora, CO · Member since 2012 · 2k+ posts · 1k+ votes
12y
Once you have rental income on your tax returns for two consecutive years then a lender will include that income when figuring your debt-to-income ratio to qualify you for a loan. (Actually, they usually use 75% of income to account for vacancy, etc. Conservative, yes, but probably a good idea...). So you'll have some boost to your buying power due to that, hopefully. Two years feels like a long time to wait, I know. But I actually think the FHA rules about length of occupancy are pretty specific, so be careful there. I haven't had an FHA mortgage for a long time, I don't remember the rules- and they may have changed. Anyway, it will all be spelled out in your loan documentation, or you could just check with a mortgage broker.
You may not be able to get another 3.5% FHA loan, but most conventional lenders will go with a 5%-10% down on owner occ.
Aurora, CO · Member since 2012 · 2k+ posts · 1k+ votes
12y
@Account Closed I think you're off to a great start. Have you considered saving up while you live in your current place for a year or two and then moving to another multi? I know one guy here in the Denver area (very pricey..) who has done quite well as a "serial owner-occupant". (You do have to make sure you live in the place long enough that you are not violating any of the terms that allow you to get that owner-occ loan though, because to do otherwise would be mortgage fraud.)
Investor · Indianapolis, IN · Member since 2013 · 647 posts · 196 votes
12y
@Jason Powell I'm assuming you have all credit cards paid off and other forms of consumer debt. I'm also assuming that you have a 6-8 month liquid emergency fund set up should something prevent you from working?
If I were you I would invest that money into marketing for motivated sellers. When I started out, most of my money was invested into marketing to help get me started and build my pipeline of motivated seller leads in Indianapolis.
Beaverton, OR · Member since 2014 · 118 posts · 119 votes
12y
Thank you everyone for your responses.
@Account Closed Your assumptions are correct. Are you talking about marketing to motivated sellers who are willing to carry almost the entire loan? If I blow my $ on marketing, there's no way I could ever finance a deal, regardless of how sweet it may be. What kind of marketing are you talking about?
Residential Real Estate Agent · Broomfield, CO · Member since 2013 · 390 posts · 125 votes
12y
Originally posted by @Jean Bolger:
@Jason Powell I think you're off to a great start. Have you considered saving up while you live in your current place for a year or two and then moving to another multi? I know one guy here in the Denver area (very pricey..) who has done quite well as a "serial owner-occupant". (You do have to make sure you live in the place long enough that you are not violating any of the terms that allow you to get that owner-occ loan though, because to do otherwise would be mortgage fraud.)
I think this is a great idea, and what I was planning on suggesting after I read your post. Keep in mind that in my experience generally the mortgage docs just state that you intend to occupy the home as your primary residence. It doesn't say how long. So buying with the intention of never occupying, or moving out in a week, would probably be fraud. But as long as you intend to and do occupy for some period of time as your primary, I think you could move on fairly quickly if you found a new deal.
Aurora, CO · Member since 2012 · 2k+ posts · 1k+ votes
12y
Once you have rental income on your tax returns for two consecutive years then a lender will include that income when figuring your debt-to-income ratio to qualify you for a loan. (Actually, they usually use 75% of income to account for vacancy, etc. Conservative, yes, but probably a good idea...). So you'll have some boost to your buying power due to that, hopefully. Two years feels like a long time to wait, I know. But I actually think the FHA rules about length of occupancy are pretty specific, so be careful there. I haven't had an FHA mortgage for a long time, I don't remember the rules- and they may have changed. Anyway, it will all be spelled out in your loan documentation, or you could just check with a mortgage broker.
You may not be able to get another 3.5% FHA loan, but most conventional lenders will go with a 5%-10% down on owner occ.
Note Investor · Austin, TX · Member since 2012 · 602 posts · 357 votes
12y
I'd agree with Gilbert Ross on the non performing note side. But I'd look at buying owner occupied notes in states that don't have a long foreclosure process/timeline. This way you can get the deep discount for the asset and then hopefully turn something into a reperforming asset for mailbox money. You could also potentially get a deed in lieu, offer a cash settlement, let the borrower sell the property via short sale, or just hold on to the new performing note and potentially sell it after 12 months as a new performing note at 85% of the new value.
You might also want to look into buying notes in the Hardest Hit Fund States to help supercharge your return.
Investor · Indianapolis, IN · Member since 2013 · 27 posts · 5 votes
12y
@Jason Powell - I have also considered being a serial owner-occupant. I have a good relationship with my loan officer and asked about selling/flipping my current house (purchased 16 months ago using FHA 203k renovation loan) and moving on to another property to do the same. She advised that since it is an owner occupied loan to be careful as lenders will look for 'patterns' and eventually deny me a loan (but nothing regarding penalty). In your case where you mentioned 2 years (where you then avoid capital gains tax up to $250k, $500k if married), one would think that would suffice the requirements of intent to be your primary residence. I would look into doing this and renting your current unit out (where you are already financed) so you can get into another 3.5% down property. You also might have enough skin in the game to find a partner as well.
You might want to consider to call around for a realtor who will take his/her commission in form of monthly payment. (When I first started out I called about 25 agent in my area to ask if they would do this, the first 24 of them said no, BUT one said yes so we applied his "buyers agent commission" toward my closing cost (about 2.5-3% of the purchase price) and i payed him 60 monthly payment of about $80 out of the cash flow of the property!
With this move your set amount of money will allow you to buy more properties from the start.
Good Luck to you!
Ps The creative buyer's agent I had found, i had established a working relationship with him and ended up purchasing many more properties with his help, so he was getting a good amount of money each month, even during snow season, when the other agents were starving.
Queen Creek, AZ · Member since 2014 · 2k+ posts · 1k+ votes
12y
See if you can get a seller to carry a second. Do a 5 year AM with a balloon. Or you have them cary the whole thing and do the refi after a year or two when you can move out of your current unit and into the new one (again with a 5 year balloon.
CAUTION. Anybody that calls investing in NP notes "Mailbox Money" is SERIOUSLY over selling the simplicity. Buying NP notes is a full contact sport with some very expensive lessons if you don't either already know the business or have somebody willing to work with you and show you the ropes. You need to understand not only the property but the Note and the Title issues as well as lending laws and a lot more then just property investing.
It can be done, I know because i just started but it is not mailbox money.
Madison Heights, MI · Member since 2014 · 471 posts · 132 votes
12y
If you live not to far from a low-income area, I would suggest buying one or two cheaper homes outright. The cash flow from inexpensive units will help you to reach your goal of passive income quickly.