Suggestions On My Personal Situation?

Question

Hello Everyone,

I've been interested in Real Estate for a couple years now, and thanks to the incredible BiggerPockets beginners guide I feel I'm ready to get started, but since my personal situation is so crazy, I was hoping I could get some suggestions on getting started with the quick and shortened version of my situation.

I have an investing partner (a family friend since I was born) and he told me if I learned to invest in stocks and real estate after I graduated H.S. , he would finance me as much as possible, and we'd have a 50/50 split on everything. I agreed to these terms, since he's more like a brother to me I don't foresee any issues. Stocks have been going great, I've just started working at a firm and trading our personal accounts, and we're off to a good start. My partner is 32 years old, and I am 20. Where things really get tricky is the financing aspect of our endeavors. Since my fiancee and I have no proof of income other than bank statements of the account that we share and he deposits his paychecks to (I've been going to school, learning to invest, and trading a joint account), but we have 720+ credit scores. My partner on the other hand used to have a construction company in Las Vegas, but when the economy went down so did his company. Now he's working in construction in ND and makes $100,000+ annually but has a TERRIBLE credit score. He has a credit attorney working on everything, but we all know how long that could be.

My partner on the other hand is an AMAZING contractor and can do everything from landscaping to full kitchen installs single handedly in a matter of days. This is no exaggeration as I've seen him do it many times. So I feel that Flipping/Wholesaling is the direction I want to go, using hard money loans and eventually leading us to purchase a multifamily unit in New York using an FHA loan so that I can live there and continue working in a firm, while living in a property with a positive cashflow. I currently live in Northwestern Indiana but frequently travel to New York City, so these are the markets I am most interested in. We're both also interested in obtaining properties and just renting them out, but in order for that to happen we have to be able to obtain a mortgage on the property, or pay cash outright so I feel that to be better off as something for the future when we are more established and comfortable in Real Estate.

All that being said, I'm not sure which route I should take between the wholesaling/flipping, and the financing difficulties. Any advice or information would be greatly appreciated. I'd love to find a mentorship but I think it may be difficult considering I'm between two different markets. I understand about bringing value and with my extensive knowledge of investing in the financial markets, I think I could help a savvy investor and offer a lot of information, but I feel like because of my young age and inexperience I will be highly doubted and criticized. While this makes me want to succeed more and more, it makes it difficult. Thanks for reading, and thank your for your time and any information you may have to offer me.

Best Regards,

Jason E.

Account Closed · Answer

Hey Jason, Following your message is very difficult because you keep jumping from one thing to another. Are you both going to live in the same area? Since he's a contractor and you're more of the finance type, it sounds like you should focus on doing rehabs. Become a part time real estate agent and find the deals / sell the houses while he oversees the projects. Sounds like the natural progression to me but it requires that you live in the same area.

Jason Eyerly · Answer

@Mike H. I appreciate your input, thanks. J. Martin When you get an FHA loan, are you allowed to move out of the property after X amount of time without being responsible for any penalties or paying off the mortgage right away? My issue with the FHA route is that I have no proof of income, and if I went in on it with my business partner, I'm worried his credit score may get us out right denied. @Ann Bellamy Sorry for the confusion. My fiancee and I are the ones with credit and no proof of income because all of our income is through trading stocks, so it's not considered as true income (we've tried to get financing with this many times before). My business partner has a nice salary, but terrible credit. My fiancee is just helping (or planning on helping) with property management if we take on tenancy, and project management for flipping. The main infrastructure is between my business partner with income who is the contractor, and myself who is responsible for the investing and management. Hope this cleared things up! -Jason E.

J. Martin · Answer

When you get an FHA loan, you sign a document that states you will be living in the property for at least one year (as of end of 2012). If you do not, you are in technical default, which means the loan can technically be called due. I haven't heard of this before, but I recommend fulfilling all your obligations. FHA are explicitly NOT for investors, and I'm not sure if you could have a second, non-family member on title - especially with a split interest. BUT, FHA will underwrite about 75% of the rental income of the non-owner-occupied units on a 4plex when they are calculating your Debt to Income. So if the PITI+MI ends up being less than 35% of (.75* rents on the other units) - or whatever the ratio is now around 35% - then I think you could qualify without w2 income.. This would have to make it a very high cash-flowing deal for the numbers to pencil out it looks like. But you'd have to ask an FHA loan officer/broker about the details.. Bumped up my purchase price by multiples.. I forgot about not having income.. I assume you can't structure your trading income as a salary with a bonus relative to profit with the person providing the capital (and maybe a forfeiture of salary if you don't make anything..)? Not sure if that would work. Just throwing stuff out at 2am..

Mike H. · Answer

The real issue I see is how are you going to invest in Indiana if you're living in New York? To me, thats your first issue you'll need to address right there. This contractor is doing the work and putting up the money. What is it that you'll be doing exactly to justify splitting the profits? To me, you need to be finding the deals and managing the properties - at the very least. And I don't see why you'd even bother with stocks for investing your own money. Pick one investment vehicle and focus on it. I guess if you're going to do the stock broker as a career, that would make some sense. Always best to have a full time income. But if you can't get much, much better returns from real estate than stocks than something is wrong.

J. Martin · Answer

You only need 1 strong partner generally for the loan (especially if they are willing and able to qualify themselves.) The alternative is to use hard money, that mainly relies on the project. And not your individual credit.. So you can go either route.. Having overall financial savvy should help in your macro prospecting, although probably less on the costs of flipping an individual deal.. I do recommend doing the FHA into a 4plex to leverage your capital. Same as I did.. You'll probably be more limited by your experience, than your age necessarily..

Ann Bellamy · Answer

I'm confused too. It appears you have 1. A finance partner family friend 2. A fiancee 3. A partner who is a contractor 4. Yourself Two of these people have 720+ credit scores and one has a terrible score (the contractor) Can you clarify who is who? Is the finance partner and the financee the same person? The contractor and the fiancee the same person? Maybe assign first names (even if bogus) and their role so we can understand?

Jason Eyerly · Answer

He has a large camper that he travels around in and does work from, so while he may not "live" in any one spot, he can travel to wherever it is we have a property that needs work, be it in Indiana or New York.