What should I do next? (Metro Detroit Area)

Question

Hello,

I am seeking advice for my next move.  For a quick background, I moved to Royal Oak, MI in July 2014 and purchased a property to live in.  This was before I knew anything about real estate investing.

I started learning about investing in real estate February 2015 and purchased another property (closed about a month ago) as a rental.  I have a signed lease that started May 1 and the tenant will be moving in the middle of this month.

When I purchased my primary residence, it was near the higher end of what I qualified for (~$190k) and when I purchased the rental property, I could only qualify for about $75k.  The rental property purchase price was $63k.

Now that it appears I am maxed out, what can I do?  The mortgage company I dealt with for the rental said I could use 75% of the rental income toward my income ratios as long as I had a signed lease.  I am not sure how legitimate that is hearing it from the loan officer.

Several options I've considered are:

1. Renting my primary residence out.  Should still cash flow but I could cash flow more with a few cheaper properties. Problem is where do I live if I need a signed lease for my place before I can qualify for the next property?

2. Sell my primary residence, move into a cheaper place, allowing myself more room to purchase another property?

I've also considered multi-family to house-hack.

I guess I am getting a little confused and may just need to speak with multiple lenders now to see what each says I qualify for.  Any information and suggestions would be appreciated on this topic and thanks for reading.

-Will

Account Closed · Answer

@Will Koederitz

When I acquired my first home, I rented out a rooms to coworkers or folks I had thoroughly vetted. Literally made them show me a copy of their credit report, W2s, etc., signed leased, 1 month security deposit, etc. Just depends how comfortable you are with sharing your living space.

Multifamily homes are great b/c you don't have to share your space that much plus you get someone to pay some/all of your mortgage. One trick is to buy a MF prop with at least one tenant, and you can use their rent to qualify for the mortgage.

Another trick is to buy a foreclosed homes or fixer upper home that needs a decent amount of work so you can build equity while you're living in it and repairing it over time. Hire out the major work if you're not qualified and/or it requires permits, but little things like cosmetic upgrades are pretty easy with youtube instructional videos.

And always get multiple quotes from lenders. Think of them like contractors: some will overbid, some will underbid.

Will Koederitz · Answer

Joshua D.

Thank you for the reply.  That is a good point to set your goals and figure out what's necessary to accomplish them.

I should have been more clear in my post, but I am looking to expand as fast as possible.  So I am open to hear any options that others would do in this situation, perhaps ones I have never considered.

Thanks.

Stephen Lovett · Answer

@Will Koederitz

I'd be interested to learn more about where your rental is and what areas you'd be comfortable living in.  I have several rentals around metro Detroit and have been investing for over 10 years.  I also live in Royal Oak and love that community.  My first thought was multi-family as well, but even that option varies widely depending on the area you're looking to live/invest.  Let me know if you'd like to meet up for coffee sometime in downtown Royal Oak and brainstorm a bit.

Will Koederitz · Answer

@Jeff Rabinowitz

Thanks for the reply.

Yes, I went to the March meet up.  I couldn't make the one in April and unfortunately I won't be able to make this one either.  Thanks for providing this information though, I will definitely have to meet these lenders next meeting I am able to attend.

Jeff Rabinowitz · Answer

You will need capital to expand quickly but it need not be your own. If you are willing to sell your home and downside that can be a wonderful start but if you want to expand quickly you will need to attract other funds also. It is important that you reserve significant personal funds for the unexpected situations that will always arise when you assemble a rental portfolio. Are you aware that there is a meetup May 22 in Troy? Here is a link to the event: May Meetup. There have been several hard money and private lenders at the meeting every time I have attended. It may be time to meet some of them.

Joshua D. · Answer

Here is one thing that I have quoted to myself 5 times this week.

"always let your goals dictate your decisions"

Where do you want to be in 10 years? 5 years? 1 year?

If you want to grow FAST my best guess would be for you to sell your primary and go all in to a multi. but that depends on where you want to be? do you want to own 2 properties in 10 years and have them subsidize you living expenses??? or do you want to have 10 properties in 2 years and go big!

"figure out where your going and then figure out how to get there"