How to add a second door to my newbie portfolio on my income

Question

I'm as anxious as I can possibly be to start investing in real estate, but I don't know how to make my next move with my current income and DTI. I just made 68K for the year through my W2 as a Manager/Executive Assistant for my boss in Utah County. I'm married with one kid that just turned 18 months. We live in a condo in Vineyard that we signed on at the end of July for $240k and the ones they're building now through the same company are selling with a starting price at over $300k, which has been great for us! My wife and I would like to move out of this 1,200 sq ft. brand new condo and move into a townhome and then eventually get into a single family. We would keep the condo and rent it out to try and cash flow it while house hacking the townhome to get in with only 3% down. Our predicament is that we don't really know how to do this with our yearly expenses coming out to be around 46k excluding vacations and any emergencies that arise. We only have about $4k in the bank, but also have about $20k in student loans which currently have a 0% interest on them and payments are still deferred due to the coronavirus.

I'm 27 almost 28 and my wife and I have a goal to get to where we can have about $150k/year after all expenses paid, that we can spend on vacations or anything else we'd like with our family by the time I'm 45. That gives me about 17 years to get I'm thinking around 35-40 doors that are cash flowing around $500+ per month in order for us to reach that goal.

I would love any thoughts or guidance any of you have on our situation and how we can not only get into our next home to slowly start moving up into our dream home, but also where we can start in order to hopefully reach out goal even quicker than we plan for our end goal if possible!

Thank you!

I'm 27 almost 28 and my wife and I have a goal to get to where we can have about $150k/year after all expenses paid, that we can spend on vacations or anything else we'd like with our family by the time I'm 45. That gives me about 17 years to get I'm thinking around 35-40 doors that are cash flowing around $500+ per month in order for us to reach that goal.

I would love any thoughts or guidance any of you have on our situation and how we can not only get into our next home to slowly start moving up into our dream home, but also where we can start in order to hopefully reach out goal even quicker than we plan for our end goal if possible!

Thank you!

Erik Schofield · Answer

@Spencer Terry Bradley

Those are some great ideas! Our condo has gained over 50k in equity since we moved in at the end of July so that seems like it would be a possibility to do a cash out refinance, that would give us the 20% down we need to get into a new place and keep our condo to rent it out. That way we can house hack and possibly get into a cheaper single family with the possibility of having a basement apartment that we can also rent out. And doing a cash out refinance will also only take our mortgage up a few hundred a month which I think we can still cash flow after the fact! Our mortgage is right at $1,250 right now with a $203 HOA so if we rent it I think we can get pretty close to $2,000/month, but I’d have to do some more research on that.

Erik Schofield · Answer

@Antonio Cucciniello

I have spoken to a few of my friends about my investing goals, but I’m currently trying to network a little more with those in my area to gain more friends that have my common interests. They say that you become the type of person you surround yourself with so I’m planning on joining a meet up here in the area to hopefully network and gain some more friends with my same mindset.

I decided to start investing in real estate because I want to gain my time back by gaining passive income and also work my way up to not having to work for a boss.

I have gained a little bit of knowledge over the past 6 months, but there’s still a lot out there I don’t know so it’s very helpful brainstorming and asking questions to see what others have done who are already successful in real estate investing. I’m hoping that by networking with others in the area I can find a possible partner to put forth my time while they put forth the money in order to help both of our portfolios.

Thank you for the questions and helping me to brainstorm even more as well as write my thoughts and intents down. I haven’t done that yet so I appreciate the push!

Spencer Terry Bradley · Answer

@Josh Schmitt

You are correct on a cash-out refinance. Be advised though most will require you to have at least 20% equity.

A home equity loan is basically a Second Mortgage. A HELOC is an open line of credit that you can use similar to a credit card, and typically has a variable interest rate. Much better explanation in the BP books as well as searching the forums/blog posts.

Erik Schofield · Answer

@Josh Schmitt

Hey Josh congrats on jumping into a single family right off the bat! My wife and I are working our way up to that.

I have checked out UVREIA! I haven’t been to a meeting yet, but I’m super interested! Do they have one meeting per month? Or do they have multiple?

Erik Schofield · Answer

@Antonio Cucciniello

Will do thank you!

Josh Schmitt · Answer

Hey Erik,

I'm 24 and we're in a similar position. We bought a single family home in April and have gotten a lot more into investing after we (my wife and I) purchased our home. Wish we would've looked into it before! Anyway I don't have any advice as I'm just a newbie but we are in Pleasant Grove and I found that the Utah Valley Real Estate Investor's association (UVREIA) does a meet up on the 3rd Thursday of each month that costs about $15 per person if you're interested in networking with people in the area. My cousin and I both plan on attending our first meeting in January! Their website isn't great but it's uvreia.com and they also have a Facebook page.

Good luck!

Antonio Cucciniello · Answer

@Erik Schofield You got it! Just keep learning and applying the information you have learned. This is the fastest way to overcoming that education gap!

Antonio Cucciniello · Answer

Hey @Erik Schofield I am 27 too. And I can tell you that as a 27 year old, there are not many of us that are investing in real estate. Tons of our friends are too busy watching netflix, playing xbox and hanging out on tiktok.

You have knowledge. Have you talked to your friends about your investing goals? And how you have decided to start?

Some will have money, but don't care to learn because they don't think they have the time (or let alone, choose not to put it towards real estate investing.)

That's where you come in. You have the knowledge. You can can put in the time (hopefully).

Erik Schofield · Answer

@Spencer Terry Bradley

Thank you! Congrats on your close as well!

I haven’t read that book yet, but I did just get his book “ How to invest in real estate” in the mail today! So I’ll read that one first and then I’ll read the one you recommended. Hopefully I can get through both by the end of January!

We do have a mortgage that requires us to live in our condo for 1 year since we used the first time home buyer program and put 3% down.

I assume a cash out refinance basically means you refinance the property adding your equity into the mortgage and then taking out that extra in cash to use it? I’ve thought of a HELOC, but what is a home equity loan? I haven’t heard of that before.

Will each one of those add another monthly payment to our bills or up our mortgage?

I’ve also heard of portfolio loans and have thought of that as well, but with our current income I don’t know if we’d be able to find a town home in Utah county for under like $270k this year. Unless maybe we did a fixer upper?

Spencer Terry Bradley · Answer

Erik, Congrats in getting into that condo! I actually am in a similar situation, closed on a condo in Orem over the summer that I am house hacking.

Have your read Brandon Turners book, Investing in real estate with no and low money down?   If not, I would definitely recommend.

A couple thoughts that came to mind:

I’m assuming you have a mortgage that requires you to live in your current condo for at least a year, and so at that point if the market has continued to go up you could look into a cash out refinance, a Home Equity Loan, or even Home Equity line of credit.

Another thought would be to find a bank/credit union that offers Portfolio loans. These would have more flexibility on what type of income they count (such as a signed lease of your cash flowing condo at that point.) I understand Mountain America Credit union in our area offers portfolio loans and  I am going to be looking into doing this next year as well.

How to add a second door to my newbie portfolio on my income

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