Realistically, what kind of job/income would you need to be able to start out?

Question

Hello. I need some personal advice.

I heard the ultimate beginner's guide podcast today. I had researched real estate investing in the past, so it was a nice refresher and I did learn some things. However, the issue about getting traditional financing in the form of a mortgage is still of concern to me.

The podcast did touch upon the fact that it would be a lot easier to get financing with a job. They didn't specify what kind of job in terms of salary would be needed. I assume the bank calculates your wages - expenses.

Making it personal, I do have a job. It is a simple part time retail job where free time is decent and hours are flexible. I have completed higher education and could possibly have a much better paying job but I fear commitment to a job with more responsibility where I won't be happy. I know the obvious path would be to take a job and save up money.

I mean, things such as the FHA loan sound fantastic, but reading the requirements it says you need to have a consistent job in the same industry for two years. Supposing I get through that road block (in another year which I don't want to wait) I have a feeling I will get screwed in some other way because of my low income.

So honestly, am I out of luck when it comes to getting financing from a bank in the form of a mortgage?

I also have another question. Supposing I get some partners or co-signers that get a monthly income from the government due to disability, or a person that receives retirement, would the bank consider that a valid source of income to be considered for a mortgage? And are there any special programs or benefits for people with disabilities or people that are retired?

Sorry for so many questions.

Brian Mathews · Answer

Don't take this wrong.  But I think its time to grow up.  I would hazard a guess but 99.9% of legitimate lenders are not going to lend you money on a part time job because you're afraid of being unhappy at a full time job.  Aside from lack of ability to re-pay due to no job.  You have no experience in the real estate or construction industry as well as no cash reserves.  And using a person's retirement or disability income as "collateral" for lack of a better word?  I will assume you have a sick mother or uncle that you are referring too?  Why do you want to potentially ruin their only source of income?  I think maybe get a real job, save up some money and then try it.

Jon Holdman · Answer

In the book "Ignore Everybody: and 39 Other Keys to Creativity" the author discusses the concept of "Sex and Money".  That's a lot less titillating that it might sound.  By that he means you do some things for fun.  That's the sex.  You other things for money.  For him, the sex is drawing pictures on the back of business cards.  He uses a bunch of the pictures in his book.  For money, though, he sucks it up and does commercial graphic arts.  That is, advertising.

So, get over it.  If you want to own expensive doo-dads, like a house you live in, you need income.  Now, maybe for you that's a real estate job like wholesaling or fix and flipping or any of several other jobs.   Maybe its actually applying that college degree.  Hopefully its something useful like engineering or computer science not something useless (job opportunity wise) like English or history.

The basic calculation for a mortgage is the payment should be no more than 28% of your gross income. That payment includes principal and interest (like a car payment) but also (property) taxes and insurance.  I'll assume you make $10 an hour and work 20 hours a week, which is 87 hours a month.  (Adjust all these number based on your actual pay).  So, you take in $870 a month.  Lenders use the gross number for this calculation.  That means you can afford a payment of about $250 a month.   Even on a really cheap house you're probably looking at $100 of that for taxes and insurance.  That leaves $150 for the P&I part of the payment.  That's good for a loan of about $30K.  If you could find a house for that, and you could qualify for an FHA loan with about 5% down plus some costs, yeah, you might be able to buy it.

Honestly I don't think its possible to find a house that cheap anywhere in the Miami area.  Nor here in Denver.  In rural MO, where I grew up, yes.   I have one I paid $11K for.  I've spent about that same amount fixing it up and it still needs more work, but it is liveable.  So, if you want to, lets be frank, live a slacker lifestyle, you might consider moving somewhere where you can find a really cheap house.  Find a cheap, dumpy house that the owner will sell with some sort of owner financing, get a job at Walmart and you're on your way.

Justin Vincent · Answer

There are plenty of incentive based options for buyer's that fall into certain demographics. The biggest thing a lender will evaluate is your ability to pay a mortgage. The number one thing you will hear about are your front end and back end ratios. These are fractions of your income that go to debts, and are most often times called debt to income ratios (DTI.) Lenders like to see a front end ratio (only debts for housing) come in at or below 28% of your total income. The back end ratio includes all debts (student loans, cars, credit card debts) and comes in around 36% of your total income. Some lenders will go higher, but being that you have a part time job in retail they may make the requirements for you to qualify slightly more stringent.

I would agree with Brian, you may want to consider a full time job. Don't feel obligated to answer, but how is it that you can survive in today's world without a full time job? If you have a disability and receive income from that then you may qualify for a specific loan product. If you are living with family because you are afraid of committing to the full time job then it's probably not going to help your case with lenders. At the end of the day the only thing you can do is talk to a lender. The absolute lowest down payment you are going to get these days is a 3.5% FHA. That's unless you secure private money. Realistically you don't have those connections, so look into owner occupied loans. You could start with buying a small duplex and seeing if you like what goes into owning property and/or managing property. Remember that with a 3.5% downpayment though you will be paying a higher interest rate/higher PMI on a larger loan to offset the risk the lender is taking to finance the house. If you default they have a non-performing asset on their book that has an unfavorable equity position. Remember that a mortgage requires PITI, most mortgage calculators online only calculate PI. The TI can double the cost of the mortgage in some markets. Also, you'll have to plan for repair, maintenance, and vacancy. You might end up doing a lot of work just to build the equity from the P cost on the mortgage each month. Also, think about closing costs. You can often times get a seller to cover them, but you will still have some expenses to pay. The other alternative is to buy in cash. Your ROI is extremely low in this approach, making the risk of real estate investing unadvised. Start saving cause it will take a lot to make real estate worth your time!

Since you lack experience in this field, it may be difficult to qualify partner money that comes from those sources. Again echoing Brian, that's an extremely risky move that I would not recommend. Things will go wrong, and you don't want someone's retirement or general well-being to be impacted.

A) Speak to a lender. Know your DTI, know what you're looking for, know what you can afford now, know your credit scores. ... You have a lot of research to do yet.

B) Evaluate why you are interested in real estate. Fear of commitment would lead me to advise alternative investments. If you get past a couple properties it will become a full time job, on the side of whatever you do for active income. If you looking for a quick buck you probably won't find it in real estate. There are too many mistakes for the novice to make. I myself own only one duplex and I'm still finding mistakes monthly that I can make. Luckily none that have screwed me up yet.

C) Either way, good luck and welcome!

Account Closed · Answer

@Mike Marko

If you're just graduated and have a full-time job, you can obtain a mortgage without an issue. You don't need 2 years of work history. I just want to put it out there so other young investors know about it.

Good investing.

Lisa Phillips · Answer

@Kenny Kartman You know, I met a contractor in baltimore, who was young. He told me at the age of 16, he purchased a property in baltiomore for 5000. He then lived in the property, and fixed it up over the next year. If you are out of debt, and can save some cash to buy outright, you can get started on the road. I did the same, except that my house was 35k and a foreclosure, but you can live in a property you're fixing up. there are books on it you can read, one being "Renovating Old Houses" by George Nash that goes into living into a house you're investing in.

This really depends: Do you have any money saved up? Can you go out and buy a 5000 house? Can you get access from family members or anyone to do that? Do you make enough to pay your utility bills and taxes? Can you pay out of pocket at reduced expenses to fix it up? When I was unemployed and fixing up my property, I had all day to learn DIY, so i would spend the 10$ for supplies and spend 3 hours on plumbing, but I had the time and enough to hold me over. When you DIY your costs go down significantly.

Now, until you get significantly more income, you're going to have to do this with whatever you can save, and start at the bottom, and do a lot of work yourself. No one on this board knows how much money you have or how much you have access too, really, but its possible. Up your savings over the next year or two, i say, and then see where you are at. Not easy, but if a 16 year old kid with no job can tough it out and do it, you can two. FYI, by the time I met him at 20, he had 6 houses in West Baltimore, so I have seen this hustle in real life.

Lisa Phillips · Answer

Although we've all said different things, I agree with everything I've seen on here. @Kenny Kartman .

@Jon Holdman and @Minh L. , and @Jean Bolger
	 have all made great points you can take with you as you start planning where you want to go with this. Let us know how you're going to figure this one out.

Jean Bolger · Answer

Hi Kenny! first, good for you for taking all this advice in such good spirit.
	Now, I just have to add in that I have never had a full time job (in the sense of a j.o.b. with W-2 income) and I've gotten along just fine, both in real estate and in real life. While it is much easier to get traditional financing with W-2 income it is not impossible without it. You just need tax returns (at least two years) that verify your income, and then the debt/income calculations are the same as they are for anyone else.

There are always more ways to make things happen than are apparent at first glance. Keep reading and learning and your way will become clear to you.

Jorge Lopez · Answer

I'm a new guy like you and if i didn't have a full time job ,i will try to get a job around real estate industry,plenty info here in BP ,example Mark Ferguson Real Estate Agent Guide post. 
Miami,Broward and West Palm Beach RE market is really tough for begginers,either buy and hold,or fix and flip(property values too high,and not so many helpers out there)and i belive sharks owns the wholeselling scenerario very quited,that is my feeling in 3 weeks learning here with little or zero info coming from those areas.
Working in Real Estate industry can open doors for you to have a networing and get your foot on the ground ,who knows if you got lucky and find the great deal,somebody said here too ,if you have the deal money will come..
Start grinding and good luck.
Excuse my English grammatical mistakes,is not my Natural Lenguage..

Mike Marko · Answer

I agree.  It is very difficult (though not impossible) to get started in real estate without a full time job for at least 2 years, or 2 year guarenteed source of income.

Lisa Phillips · Answer

Sure thing. To answer your original question, anyone making 30k/yr and up has a chance at home ownership. It won't necessarily start out in the best part of town, but that's a salary to me where you can pay mortgage, make repairs, afford the basic necessities if you are financially disciplined. However, the less you make, the more disciplined you must be to acquire the capital yourself.

Nothing is impossible, some people just have to start a little lower than other people. I have to, so I just grit my teeth and make the best of the situation.

Realistically, what kind of job/income would you need to be able to start out?

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