Loan Approval, Owning Multiple Properties, and Real Talk

[Account Closed]

I'm hoping that someone sees this and can dive in with "real talk." I'm going to lay it out there, and as I'm learning through this initial start up process (and I'm a quick learner) that I'll be able to realistically figure out what we can do financially, what we can afford, what our realities might look like, and other pieces of sound advice. I've been reading Bigger Pockets for quite awhile but haven't seen someone ask the exact type of questions I'm wondering about, so I would appreciate the help of those of you who have gone before. 

I'm going to try and organize my questions in numbered order, so commenting on any or all of them would be super helpful. Thank you!

1) My husband and I are both educators. I don't have to say much more for you to understand that our salaries are not those of corporate execs or other similar jobs. We love what we do, but are hungering for more and other ways to maximize our earning potential. Many educators take on side jobs in the summer to supplement their income; we'd rather stay home with our family. I'd like to simply know: Can people making salaries within the 50k range own multiple investment properties, or is it much more challenging and more for those, "you have to have money to make money" types? 

2) We have about 100k in equity in our personal home. We're sitting around a 35% DTI right now. We have about $25,000 in reserves in the bank, though we'd prefer not to use that as a down payment because we're learning that banks are wanting about 6 months of mortgage payments in reserves, correct? My question for those of you who own multiple properties: If you take out conventional mortgages on your subsequent properties, how do you come up with the 20% needed for each down payment? Do you take out HELOCs on your previous properties? Make enough from rental income? Or do you just make enough in your day jobs to save and come up with the 20% required? Investing in our first rental property won't really be a problem for us if we find a property around the 100k mark, but it's trying to figure out how (realistically) we could (and how you all) fund your subsequent properties that I am most interested in.

3) What is the average or common path to financing that you as investors use most often to buy your properties? Have you accumulated a lot of weath so you can buy outright? Do you go the conventional mortgage route? Go for private investors? Work with investment partners? I'm really just wondering whether two teachers who make around 50k a year each can own multiple rental properties. Do banks count your DTI on all of your properties and add them up together? How can so many of you own multiple investment properties?

4) What is the realistic "start up" cost for securing each and every investment property? I'm reading a lot about hiring real estate attorneys, creating LLCs for each property owned, working with real estate agents, making repairs, etc. If you were to take a 100,000 property as a baseline, how much would you expect to bring (out of pocket) to each home at closing based on the consultations you have, etc.?

5) How did each of you get started in investing? Did you have no money? Come into a windfall/inheritance? Save your own money? Have a well-paying job that funded it? I'd love to hear your stories. 

6) And finally... how many of you own properties in other states and how did you decide on those cities and states to invest in? We live on the west coast where property values are astronomical and rental rates are stagnant and soft. Most people won't pay more than $2000 in rent for a prime property in the city, and yet city real estate prices are through the roof. There are virtually ZERO rental properties within 100,000. Because of this, I feel like there is no way we can invest in our state because we do not have the 40,000 - 60,000 needed as a down payment for a 250-300k SFH property that our state is laden with. Incomes are not matching housing prices which is a huge issue, so Oregon is just not a great place for investing right now. We have family in the south and have been looking at South Carolina, Arkansas, Texas, North Carolina and Florida. What are the pros/cons and potential issues (besides having to for sure hire a property management company) to consider when investing in other states? Are there sales taxes assocaited? (we don't have them in Oregon).

Thank you SO much for any help on any of my questions you guys can offer-- transparency and realistic information is appreciated. I have a lot of experience in real estate as I mentioned, but there are some gaps I'm facing information-wise when it comes to getting started and then funding multiple investments on a public salary. 

[Randy E.]

Originally posted by @Account Closed:

I'm going to try and organize my questions in numbered order, so commenting on any or all of them would be super helpful. Thank you!

1) My husband and I are both educators. I don't have to say much more for you to understand that our salaries are not those of corporate execs or other similar jobs. We love what we do, but are hungering for more and other ways to maximize our earning potential. Many educators take on side jobs in the summer to supplement their income; we'd rather stay home with our family. I'd like to simply know: Can people making salaries within the 50k range own multiple investment properties, or is it much more challenging and more for those, "you have to have money to make money" types? 

2) We have about 100k in equity in our personal home. We're sitting around a 35% DTI right now. We have about $25,000 in reserves in the bank, though we'd prefer not to use that as a down payment because we're learning that banks are wanting about 6 months of mortgage payments in reserves, correct? My question for those of you who own multiple properties: If you take out conventional mortgages on your subsequent properties, how do you come up with the 20% needed for each down payment? Do you take out HELOCs on your previous properties? Make enough from rental income? Or do you just make enough in your day jobs to save and come up with the 20% required? Investing in our first rental property won't really be a problem for us if we find a property around the 100k mark, but it's trying to figure out how (realistically) we could (and how you all) fund your subsequent properties that I am most interested in.

3) What is the average or common path to financing that you as investors use most often to buy your properties? Have you accumulated a lot of weath so you can buy outright? Do you go the conventional mortgage route? Go for private investors? Work with investment partners? I'm really just wondering whether two teachers who make around 50k a year each can own multiple rental properties. Do banks count your DTI on all of your properties and add them up together? How can so many of you own multiple investment properties?

4) What is the realistic "start up" cost for securing each and every investment property? I'm reading a lot about hiring real estate attorneys, creating LLCs for each property owned, working with real estate agents, making repairs, etc. If you were to take a 100,000 property as a baseline, how much would you expect to bring (out of pocket) to each home at closing based on the consultations you have, etc.?

5) How did each of you get started in investing? Did you have no money? Come into a windfall/inheritance? Save your own money? Have a well-paying job that funded it? I'd love to hear your stories. 

6) And finally... how many of you own properties in other states and how did you decide on those cities and states to invest in? We live on the west coast where property values are astronomical and rental rates are stagnant and soft. Most people won't pay more than $2000 in rent for a prime property in the city, and yet city real estate prices are through the roof. There are virtually ZERO rental properties within 100,000. Because of this, I feel like there is no way we can invest in our state because we do not have the 40,000 - 60,000 needed as a down payment for a 250-300k SFH property that our state is laden with. Incomes are not matching housing prices which is a huge issue, so Oregon is just not a great place for investing right now. We have family in the south and have been looking at South Carolina, Arkansas, Texas, North Carolina and Florida. What are the pros/cons and potential issues (besides having to for sure hire a property management company) to consider when investing in other states? Are there sales taxes assocaited? (we don't have them in Oregon).

 1) I bought my first rental house five years ago.  At the time, I made less than you, my wife and I combined made much less than you and your husband, and I had three small children to support.  It can be done.  It's less about how much you make and more about how strong is your desire to make it happen.

2) At that time, we had about $10K equity in our primary home and I had about $10K saved for the purpose of investing in an income property. Strike that. I had a total of $10K saved altogether, period, for investing and "life emergencies." For me personally, investing in a rental property was a life emergency. My DTI was a lot less than yours. When we bought our primary, we purposefully bought less than we could "afford" according to the some banks' opinion. We had no automobile payments at the time I bought that first income property, and essentially zero credit card debt. Our DTI was basically our mortgage and nothing else. I planned it out that way.

3) My finance path?  I saved for over two years until I had $10K.  I asked my bank for a Line Of Credit and they provided one - a lot smaller than I'd hoped it would be.  I bought a house that cost a little more than the LoC amount, used my savings to get it rent ready and rented it to a tenant.

4) Every property is different. Also, every investor is different. I didn't seriously consider creating an LLC, hiring an attourney, or doing anything extraneous. My goal was to reduce debt, save cash, and acquire a property. That was what I stuck to. Maybe those making more money than me can indulge in those extras, but I wasn't going to be held back by trying to keep up with pockets bigger than mine. I will say this -- quickly looking at homes in your area, I agree $100K seems to be a good target. However, if I were you, I'd look for something a little cheaper and be ready to pounce on it when it appears because it likely won't last long on the market. Also, I'd prepare myself to use some/most of that $25K savings to get it rent ready. Yes, you may need to show some savings to qualify for the loan, but there's no rule that says you can't spend it AFTER you get the loan. If your tolerance for risk is not high enough to spend a substantial part of that savings, then keep saving and delay your purchase until you have enough to satisfy your risk tolerance AND to spend enough to fix a house to be rent ready.

5) As stated above, while making less than you I saved for over two years until I had about $10K.  Then I went to my credit union and applied for a LoC to provide the rest of the money needed.  Once I rented the house, I applied every cent of the rental income toward paying down the LoC.  Also, I continued to save as I had the two years prior, also applying that money toward the LoC.  (So, I guess I wasn't really saving it ;-) )

I was lucky in that I bought my first property at just about the lowest time during the recession.  That was also, more or less, a conscious decision by me.  I kept up with the news that the recession was upon us, and I knew that would be a great time for me to invest because the prices would drop.  I saved, prices continued to drop, I saved, I took out the LoC, I pounced.  Today, five years later, I own three rental properties, and if all goes well, I'll buy two or three more by the end of this year.

6) All my properties in located in the city where I live.  Actually, all are within a ten-minute drive of my primary residence.  That's ideal for me.  I realize it won't be practical and/or easy for other investors to purchase so close to where they live.  Unfortunately, I don't have any firsthand advice about investing far from where you live, but I've read enough here on BP to know it's possible.  I would watch for high property taxes, such as in SC where some counties charge a lot more for investment properties than for primary residences. 

Good luck, Megan.  If you want this bad enough, you can do it.  And if you plan wisely enough, you can do it successfully.