Unique Situation: What would you do in my shoes?

Question

Hello everyone!

I am Sam, a newer real estate investor living in Nashville TN. I have a unique investing situation and I feel sort of stuck as to my next steps or even what avenues have opened up for me. Heres a little back story:

In 2017 I moved to Nashville to pursue a career in marketing. I was doing really good for my self and decided to buy a house in 2019 right before everything exploded. Then the pandemic hit and I was let go from my career. I started picking up gig work and focusing more on videography,web design, production, wedding dj, during/after the pandemic. I have been doing freelance gig work for 2 years now but 2022 is the only year where I made over 50k doing so. I have been house hacking my 3br2ba house ever since I bought it in 2019, now it is just me and my SO (not married).

I have been renovating slowly as I can with just my income, new bathrooms, siding, electrical panel, finishes, etc.
From doing so the appreciation has gained me over $130,000 in equity. I was able to remove the PMI from my home.

I was able to lock in a 30yr mortgage at 4.2% so refinancing to a higher rate doesn't seem optimal for me.
I also have been talking to the lender who I got my mortgage from and since I no longer have a W2 job its looking grim on getting a traditional mortgage.
I've explored maybe getting a HELOC to access the equity in my home.
I really want to get another property with my SO and potentially rent out our current house fully. Which would cashflow at current rents. We are not married. She also does freelance gig work.

I just feel sort of stuck as to how I can make this work for me. Any advice for a new investor?

Thanks in advance,
Sam

Luka Milicevic · Answer

@Samuel Buttram I would firstly advise against moving to another house and renting your existing one out. The reason being you have gained 130k in equity that as a primary residence should be tax free. If you move out and it's no longer a primary you now have the option of a 1031 if you sell. This is not a tax free sale, it's nothing more than a tax deferral. Since you paid so little for the propertty in comparison to what it's worth your depreciable basis is also relatively low. In terms of qualifying for loans, you will have a harder time BUT it's not impossible by any means. You just need to talk to several lenders before you land on one that can use your previous tax returns and income to count towards your loan eligibility. If I were you, I would look at selling your current home and buying a multi fam, or two single fams and continue the house hacking route and then also have a second property. Alternatively, have you considered a first position heloc? Use the full equitty in your primary to aquire another property in "cash" and then refinance out into long term financing once you have it stabilized. That's my bread and butter right now. @Mason Jeffries is a very creative lender and might be able to help you out in your situation.

Nathan Grabau · Answer

I would walk into some local banks and ask to talk to someone about lending. You sit down, ask them about what they are looking to lend on, chit chat with them, then I would share your story with them. There is a reasonable chance that after some no's you will be able to find one that offers cross collateralization, this is the process of essentially using the home you are currently in's equity as equity in a future deal, that if you defaulted on the new property, would cover their costs to foreclose on you. It is a unique situation, but local banks are having a really hard time getting money out the door with how high the rates they have to charge to make money is. The small local banks are also going to be less strict about your source of income, and care more about confirming that it exists and is reliable vs making sure it fits into a small box.

Andy Garretson · Answer

Hi Sam,Depending on what your income has been like in the last 12 months or so, you could possibly look at using a bank statement loan or some other alternative financing to buy another house. With your rental cash flow, plus your freelance income, this could get you what you need to buy another primary residence. Let me know if you'd like to discuss as my lending company does a bunch of these types of loans. My cell 615-955-3130

Annette Hibbler · Answer

Sound advice from @Samuel Buttram. MF may be the way to go. As far as lenders are concerned, I'd avoid the big banks and focus on credit unions or other small/mid size local bank. They tend to have more flexibility and willingness to work with investors.

Mason Jeffries · Answer

@Samuel ButtramIf you plan to rent out your primary, and your last couple years of tax returns for you and your SO show a net positive income, than its still possible depending on your price point. There may be some other options available to you, but they may not be very attractive. Going to alternative loan products such as bank statement loans, DSCR loans, etc.. will require more down payment, higher loan costs, and higher rates. Although it could potentially get the job done. A HELOC might be an option now, but you still have to qualify for that too based on income.Regardless if you are W2 or self employed, lenders want to see that your income is likely to continue, and increase. Your lender should have helped you put a plan in place for you to increase your buying power and achieve your goals. Feel free to message me if you need someone to walk you through this.