Need Help/Opinions/advice on first deal financing!

[Joshua Meyers]

Hey all I'm in a bit of a sticky situation. I have a good paying W2 job(>$30/hr) as a poker dealer in Pittsburgh. I've been there approx 1 year. The problem is I only make $4.50/hr base pay and the rest is through tips(all of which are 100% turned in). My hourly rate is very consistent. With that being said there was about a 6 month period where I was in school/unemployed before I got my job. Every lender I've talked to so far wants 2 years worth of employment history to even consider me. Right now my monthly gross is right around $3500-$4000 but the lenders won't take into consideration that amount. They will only use my base pay($540/month) plus 75% of whatever the rental income is on the property I'm considering. Is there any way around this problem besides waiting another year before they can use my tax returns as a basis to judge my income by? I'm looking to get FHA financing and my credit score is approx 700ish. I'm 22 years old. Thanks to for the help and advice guys!

[Michael D.]

@Joshua Meyers, I envy your position, but I won't say much about your specific question except: Don't. Lenders just won't look upon you favorably right now.

Better is to just save a little and buy something with cash. You make a lot of money and probably have very low expenses. Put your first $120 every day you work aside and in a couple of months you'll have enough to pay cash for a not-very-nice house in a not-very-nice area. Don't worry. You won't be there long. Fix it up just a little and trade-up in 12 months or less after you save a few more bucks. In a couple of years you'll be living in a paid-for house worth $100k or so, at which point you could always borrow if you want to for the next one. At that point you will have learned some valuable lessons and built up a solid foundation from which to grow an empire. You might want to borrow to increase velocity (and risk), or you might just continue building wealth organically with cash. Either way, by the time you're 30 you won't have to work any more if you don't want to.

And definitely DON'T get an FHA loan. If you need one, then you're doing it wrong!

Michael

[Joshua Meyers]

Michael D. I'm confused right now? It seems like everything I've learned tells me to do what I'm doing by getting an FHA to purchase a triplex and build up some equity to continue purchasing more property, but then you say not to do it. I'm not calling you out or anything, because you seem really sincere. I'm just very curious as to why you recommend I don't do this? The property I'm looking at is going to cash flow +$300 a month with 25% taken away for vacancy and capex. All the while giving me a place to live and build equity for free. The leases are already in place for the first year as well

[Matthew Ficorilli]

From my experience, to get FHA or even conventional financing, you may have to wait it out. You can try owner financing if you're dealing directly with the seller.

[Michael D.]

@Joshua Meyers,

"I'm not calling you out or anything..." - This statement calls me out, but that's okay. We're not here to pat each other on the back all day.

"It seems like everything I've learned..." - Then you're reading and learning only within a narrow scope, maybe involving a guru or something.

"The property I'm looking at is going to cash flow +$300 a month..." - That sounds great! If you can really buy into a property for close to nothing down that will give you a place to stay and $300/mo in cash flow to boot, then it's all upside. I don't see many of those though, even in the Pittsburgh area. My experience is much more conservative than this.

So back to your original question: FHA is a government program with strict guidelines. You either meet them or you don't, and you don't right now. Conventional is slightly more flexible, but not a lot, and has more serious down-payment requirements. If you really want a loan, you might try talking to a local credit union. Please understand that no matter how you see yourself, every lender is going to see you as very high-risk and you will have a lot of selling to do.

My advise stands.

Michael

[Matt Faix]

@Joshua Meyers

You may have to end up having to wait for a conventional or FHA loan, I'm not sure how the underwriting works for base salary vs gross, but it sounds like you won't be able to get around it. You can try the seller financing route as @Matthew Ficorilli mentioned, or you can try to network and find private money to fund the deal.