All Forum Posts by: JAMES Coleman

Aaron,

Thank you for the information, that is very helpful.

Aaron,

That is very interesting, you bring up points I had not considered. I do have a question you may be able to answer. My wife and I are interested in flipping on the side and have recently completed the renovation of our personal residence, which we hope to profit from. We will sell this house and look for another to flip.

If I create a C-Corp, or other entity, how does the financial piece work? For example, can the C-Corp get loans and act apart from me and my wife (who would be shareholders)? Along these same lines, is it possible to get financing by way of small business loans to use for flipping?

Thanks for your input,

Jim

Thanks to everyone for the thoughtful responses, I appreciate your time and helpful information. What I’m gathering is your income and credit score are directly related to gaining most kinds of financing (and that seems like a no-brainer). I had hoped to count rental income, but I can understand building credibility/experience and showing positive rental income for a period of time.

I had an idea of a more effective plan, which is alternating between flips and paying cash for a rental. We could make enough money in one or two flips to pay cash for a small house in our town ($35-$50k) that we could rent out for +/- $700 per month. I suppose in this way we will be able to avoid using conventional financing (other than for our personal mortgage) and still make progress in our investing.

To put it this way, in 10 years from now I would like to have enough passive income to quit my job. As mentioned from my previous posts, we are able to live comfortably on $40k per year, although we could certainly get used to more! Is this idea overly optimistic or doable? My wife and I have plenty of drive, a humble interest in learning, and adequate renovation know-how, but lack a high salary.

If you all were in my situation, with the above goal, what approach would you take?

Stan,

To answer your question: This town has a population of approximately 15,000 people and the household income is quite low. We have many homes in the $50-$75k range, however, there is a nicer pocket of town that houses sell for between $125-$175k. The majority of the population is unable to afford the nicer homes, however, there is a definite market for pricier homes and there are very few of them (most are seriously outdated and are in need of major renovation).

Jon,

I appreciate your thorough responses. I appreciate the information about the 2-year rule for your primary residence. We are very close to that mark and do not plan on having a capital gains tax burden from the sale of our house. And to answer your question, the $35k, while maybe optimistic, is the net amount after all fees and costs are deducted.

In terms of counting rental income, I plan on speaking with several lenders here in town. We have our current mortgage through a small bank here and I’m able to speak directly with the decision maker (I’m not sure if that’s beneficial or not but I think it may be).

Per what you said about Fannie Mae’s requirement of having rental income on two years of tax returns; that seems like a lot! I’m quickly learning that the real estate game is a slow paced endeavor, and I’m okay with that. I’m very happy with my current employment, but have set a goal of doing real estate full time when we can make the transition.

Changing the topic a bit: My wife is super conservative and is hesitant to entertain the idea of alternative financing such as seller financing or hard money loans. What is your perspective on these types of financing and if it’s positive, can you share any words of wisdom I could use to make my wife more comfortable with it? I’m not in a huge rush and want to make responsible decisions, but I also want to be as productive as possible.

Jeff,

I appreciate your feedback as well, would you please also answer the question I posed to Jon in the above paragraph?

Thanks!

Jim

Thanks to all for the feedback, I appreciate everyone’s input.

Ophelia,

My wife and I were speaking earlier and decided we would like to sell our house to realize the cash from our equity gain. We have been shopping around for duplexes or triplexes and have found a few options. I want to make sure I understand what you’re saying, so let me give you a scenario:

1. We sell our house, realizing $35k in cash (hopefully).
2. We buy a duplex which after we rent one side, we will only have a deficit of approximately $200 per month to make the mortgage.
3. After we fix up the duplex, we may have an interest in buying another place.
4. When we are ready to buy another place (say after 6 months to a year), will the bank consider the $600 per month we have been making on rent? Even if we do not gain 30% equity in the duplex? Or is it imperative to gain the 30% equity?
5. In theory, if the lender would consider our $600 per month rental debt, we should be able to easily qualify for another primary residence correct?

The bottom line of what I’m trying to establish is with my low income, I have to find a way to have other income counted so we can continue to build our real estate portfolio. Thanks for your input!

Joel,

You make very good points and I’m cautiously optimistic that we can make the $35k. We have spoken to our trusted realtor, who thinks we are in the ball park. We have done some nice reno work (almost completely by ourselves) and have some features in our home that many houses do not have. We shall see I guess!

Hello all,

My wife and I are at a fork in the road and need some guidance. For the sake of a little background, we bought our first home two months shy of two years ago and have fully renovated it. We bought the house for $94k and believe we can sell it for $150k. After it’s all said and done, we think we can walk with approximately $35k net.

Choices, choices….

1. We could sell the house, buy another undervalued house and flip it again.
2. We could rent the house (the rental market is great here and I think we could cash flow, albeit by just a little bit.

Here is where I need some guidance. I’m very unfamiliar with real estate financing and I’m frankly not sure what our options are. My wife is a stay at home mom and our household income is slightly less than $40k per year (we live in a small home, most homes cost $60k or so).

In terms of debt to income ratio, lets say we rent out our current come, have it under a signed year long lease that will safely make our mortgage payment and a little more. Will a normal bank allow us to qualify for another home in which we will live in? In other words, will they count our rental income for the sake of our debt to income ratio?

Furthermore, if we bought a duplex, lived in one side and rented the other, would that still count under the rules for buying a primary residence or would that count as an investment property?

I appreciate the feedback from BP members, I have spent many hours perusing the site!

Jim