All Forum Posts by: Jon Puente

Hey Blake, 

You need these things EVERY time, no matter what:

1) Income (Ideally 3x Rent)

2) Background and Credit Check (for me its 650 minimum and no felonies)

3) Phone call each prospect or meet them at the property (if possible) and see how they interact/speak and conduct themselves.  

4) You can also call past landlord for references and ask if they would rent to that person again.

The first two are non-negotiable, especially if you are scaling.

Hey Elie,

Purchase price does not determine the "worth" of a property.  it only determines what you are agreeing to pay.  So if you want to have built in equity from the start, you need to have a solid idea of what that property is worth, and then negotiate under that value for a purchase price. 

For example - If a property is worth around 200K (based on comps in the area), then you need to buy it for 180K and hope that it appraises for 200K.  It won't always be perfect, but the goal is to not overpay for a property.

Hey Dave, 

Just shop with a mortgage broker or credit union! Do NOT go to a retail lender like Fairway, Rocket, Guild, Movement, etc...  They have the highest rates/fees of all lenders. 

Hey Chris,

Once you get past 3-5 rentals, you should be using DSCR financing. No W2 income required, and its based on Credit, LTV, and Debt Service Ratio (hence DSCR).

You will have to pull your credit, but only once. No need to do it multiple times, especially if you are working with a mortgage broker. I actually have a DSCR Cashout refi going right now on a property in Charlotte, NC.

Hey Mike,

Without knowing all of the numbers and loan estimate in full, its hard to give accurate advice.  However, based on what you have outlined, your fees/rates are subject to change based on market conditions UNTIL you lock in your rate.  Once you lock, the rate is frozen based on that day's rates.

The good news is the market has dropped drastically in that last 48 hours due to several banks collapsing, so if you haven't locked in your rate already, this week would be a really good time to do that.  Putting down 25% will yield you a better interest rate than 20% in almost every scenario, so that is up to you!

1) Points - Buy down your interest rate.

2) Processing Fee - Pays a processor to move your file from start to close.

3) Origination or Underwriting Fee - Lender fee to take on the loan (although its basically the same thing as buying down your rate). 

Great Question!

Hey Elie,

You can use rental income if you have proof of it, aka a 12 month lease agreement.  Depending on the loan scenario, you may be able to order a 1007 appraisal where the appraiser factors in "Fair Market Rents" to help qualify, but under a normal scenario, you need a lease agreement in place. 

Great Question!

Selecting solid tenants is by far the best risk management tool.  You could have the nicest house on the block, and 1 bad tenant could ruin it all.  Not only could they ruin the property and all of your money/efforts, but they can kill your morale.  It can scar you, especially if you are new or fairly new. 

Your tenant is your customer.  You serve the customer, and they pay you rent.  Nothing is worse than having a terrible customer, regardless of the product. 

Hey Gerald,

The formula is actually not that complicated at all, so hopefully I can help simplify this for you. 

For Example: If you have a lease agreement on a property for $1500/month, lenders can use 75% of that income towards offsetting the mortgage payment, so lenders will use only $1175/month. If your mortgage payment is $1300 on that property, then yes you are technically cash-flowing $200/month, but in a lenders eyes you are "losing" $125 on that property every month. This is why your DTI is impacted, especially with more properties involved.

The alternative way lenders can analyze this is by looking at your Schedule E on your Tax Returns to see what you declare for income/expenses for your rental properties and use that instead. This could impact your DTI more or less than the example above, depending on how much you write off on your Schedule E.

If you are finding yourself at the DTI limits, then look at DSCR loans. That is what most investors are doing now who own many rental properties.

Hey Dan,

You have 25 years to achieve this and I like the idea of leaving a legacy to your children in the form of real estate. Your strategy could easily be reached, assuming you are able to pay off the mortgages and NOT do what most people do which is "cash out refinances or tapping into equity when rates get good."  It's easy to talk about it, but it's hard to stay disciplined. 

My only alternative thought is that I doubt your plan goes exactly like you are outlining.  A big thing I want you to think about is do you really want to be self-managing rental properties when you are 68??? Many folks who get older end up selling off a portion of their real estate and live life more freely.  You are only thinking with your head right now (which is fine), but when you are older, you will think more with your heart.

I bet you end up exceeding your goal to 20-30 houses, but then selling a portion of those and taking your money to enjoy life.  Or you hire a full-time PM to handle all of the day to day tasks, and take less cashflow as a result, but you enjoy life at retirement!

Great thought process, and either way you will win. 

Hey Chris, 

That is completely false, and I am not sure what lenders you have spoken to.  I am a mortgage broker and work with several lenders who will go below 100K for loan amount, using a Conventional Loan.  People do this all the time for rental properties.  Rates wont be great, but at least it gets you in the door for leasing the property and collecting rent!