Is this possible?

Question

Hello all,

I've had this idea floating around in my head for a while, but I'm not sure if it would even work. I would like to run it by you all first.

My girlfriend and I earn over 100k and purchased a home for 240k recently (4/10). We would like to start a family soon and want to move back home in a few years. Its tough to find a good job where we are from, so we would like to jump into real estate investing. My question is: how hard would it be to purchase an investment property out of state? I know normally it is advised not to do this, but we do plan on moving back soon.
My idea was to take a leave of absence from my job, travel back home, purchase a rehab property with a hardmoney lender, and sell the property back to myself. A long term friend of mine flips property for a living and said he'd gladly help me out with his lender and contactors and also mentor me along the process. I have my own collateral + fix money. I know once I move back home I'd be unemployed, so finding financing is non-existent and of course I'd have to do this before I go. Basically, before we move back home to start a family we would like to have a multi-unit property that we could live in/rent out while investing on rehabs. Any constructive criticisms or advice would be gladly appreciated. 
Thanks 
Alan

Jon Holdman · Answer

You can't "sell a property to yourself".  I think you mean you want to buy with hard money, fix it up, rent it out, then refinance.  That's feasible.  I've done it twice.  There are some gotchas.

You say you will be unemployeed.  Getting a loan without income, whether hard money or long term financing, is essentially impossible.  If you have a huge wad of cash in the bank, perhaps.  Otherwise, you need the income to cover the loan.

In addition, you need some cash in the bank, and you need good credit, 720+.

You need to plan on holding the property at least six months.  You'll want to use a new appraisal, and banks require you own it for at least six months to pull this off.  Maybe a year.  So, if you're paying 15% interest on the hard money, just realize you're going to be paying that for a while.

A rental property that spins off $100/month in REAL cash flow is a pretty good deal.  That's $1200 a year.  To replace $100K in income, you would need 83 properties.  Or, at least 83 units.  Getting there will take some real diligence and a lot of hard work.  Getting 83 loans is going to be extremely tough.  Getting a loan on a 83 unit appartment complex with no experience, no cash and no income is going to be impossible.  You'll have to work you way up. You'll need to be creative.  If you're going to be self employed (flipping houses), you'll have to be extra creative.  Possible:  Yes.  More work than the jobs you have now?  Almost certainly.

Read and study this business.  Read in the Rental Property forum.

Sharad M. · Answer

Hi Alan,

But if your end goal is to replace over $100k of income from investment properties, it might be a few years before you reach that goal. Don't fall into the trap of Cash Flow = Rent - PITI. Read more about 50% and 2% rule in the Rental Property forum. There is tons of great info there.

As far as rehabs are concerned, it's great that you will have your friend who seem to be experienced to guide you through, but please be careful that you will be investing your hard earned money, so do your own due diligence before you decide anything. Just because real estate investing is working out great for one person doesn't mean it will work out for everyone.

Sorry, but I don't mean to be rude in anyway, but there are so many factors that go into real estate investing. Your friend may have completely different risk tolerance than you would. Your friend may be single and the worst that could happen to him isn't as bad as it could be for you with a rehab going wrong. You and your girlfriend make over $100k and you purchased a home for $240k, so I am guessing that you are a fiscally conservative guy, I could be completely wrong about this.

Hope this helps!

Account Closed · Answer

With over $100k current yearly income and perhaps a $2,000 ish mortgage on your $240k home I hope you are able to save up a significant amount in the event that you stop working the current job and take time to venture into other business.

While you still have the income and may be able to take out a loan to acquire investment property, why not check into an multi unit income producing property which you can receive immediate cash flow? For the first time, I would avoid using hard money for rehab and then refinance. The time that it takes for the rehab can present challenges to your ability to qualify for a long term loan when the time comes, and the vacancy could cost you while the hard money generally have high interest rates. Hard money is also generally used by investors who flip properties, not for long term holding.

It is not likely that your 100k income will be replaced immediately. As you might have taken years of training in your profession to obtain a 6 figure income, it will take you some effort and consistency in the real estate business to suceed.

Good Luck.

Alan Ogunnaike · Answer

Thanks all for the responses, I really appreciate it!

@Max- Thank you for your insight, your right my friends' risk factor will defininitley be different from mine, and theres truely only one way to find out. We would like to make the move in a few years just because of that. Id like to have emergency liquid just for an extra secuirty blanket.

@Jon- Yes I did mean refi. I know its impossible to purchase a home without income, thats why I was saying Id like to buy it as my 2nd home before I quit my job. Also, Im not interested in becoming an 83 unit landlord. I dont want to replace the money that Im making now with rental income, I just wanted to know if I could buy a 2nd under my circumstances. I plan on speaking to a mortgage lender, I just wanted to run it buy you guys first. Thanks for sharing with us that you have refied before. That gives me some hope that I might be able to do it  too =).

@Cobane- Thanks for the advice and the percent ratio. I do have more that 10% to put down. Maybe Ill have more that 1 property in the future (over there), but for now Ill be happy getting the first one.

@Celine- The property that Id like to purchase is a multi unit house. Most the houses where im from are actually multi units. Im looking for triplexes. So, that works out pretty good for me. =) And about the hardmoney, Id only like to use them for purchasing the property and refi, like jon said, in 6 months. My other option is purchasing a remodeled home (triplex), but I feel like Im leaving money on the table by taking that route. Plus Id like to gain some experience in rehabbing.

Thank you all for responding to my message

Caleb Cobane · Answer

Here is what I would do with a client in your circumstance. "Second Home". If your home is further than 75 miles away and you can afford to put down 10%, your Debt to Income ratios are inline, and decent credit than this is your best bet.

As for the investing part... Jon is right on the money. Most lenders only lend on up to 4 financed properties. Some, like myself, can lend up to 10 with the FNMA multiple property program. You need to be a pristine borrower to borrow anything over 4 properties with a strong income considering you can only utilize rental income if it is reported on your last 2 years tax returns.

In short, your best bet will be to purchase this other property as a Second Home, keep and rent or sell your existing property. Once you make the move, and the other house is rented or sold, refinance it to a primary residence.

Email me with any questions. Blessings,

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