How I became a real estate investor, you can too

Question

I saved money, learned some basic rules of lending like DTI, and bought a house in 2016 using a conventional 5% down loan. I kept saving and learning, paid off my car and student loans (helped my DTI) so I could buy another house in 2020 using another conventional 5% down loan (this time I prepaid the PMI because it was half the price of making the payments). I had to move and had to show I could afford both mortgages, so I didn't max out my DTI on the 1st one and I couldn't buy my dream house either, but I became a landlord and that was my dream.

I rented out the 1st house and kept saving. In 2021 I bought a 3rd house using another conventional 5% down loan, yes I had to move again, but now I learned a little trick on how to keep my DTI down since they only used 75% of the rental income on the 1st house because I didn't have a full year of collecting rent on my tax returns yet. The trick was I put a lease on house #2 and was able to use 75% of that rental income to offset the mortgage, this gave my enough room on my DTI to qualify for house #3.

At this point house #1 had basically doubled in value since 2016 and my return on equity was too small, so I did a cash out refi and pulled $130k out. This put me right at my max of my DTI and I wanted to use the money to buy another house, but I couldn't move again right away, because you have to intend on living in your house for 12 months when you do a conventional 5% down, so I bought a condo in down town using a conventional 25% down loan (lender required this because less than half the complex was owner occupied) the 25% down also helped keep my payments down to qualify with DTI since I had to wipe out the entire PITI using 75% of the appraisal projected rent.

A few important things to consider here are: my wife and I have had consistent W-2 income, we were able to find properties that would cash flow on day 1, and we always saved to have more reserves than we needed.

We plan to continue with this strategy of buying a house every few years using a conventional 5% down loan until we get to the max allowed 10 conventional loans.

Josh Young · Answer

@Benjamin Sulka they were all SFH, sometimes I wish I would have done a small multifamily, but at the same time I don't know if I would have qualified for the financing at the time. Sometimes you are better off just buying what you can afford at the time, I see people saving up for the more expensive property and it ends up appreciating in value faster than they can save.

Chris Evans · Answer

@Josh Young congratulations sir! You have taken the same path that my wife and I started on in 08. Keep it up because it only gets better.

Account Closed · Answer

I always appreciate the realistic testimonies like this one. Many investors skip over arguably the most important starting point you mentioned- saving up and managing your DTI.

Benjamin Sulka · Answer

Josh, Congratulations are in order!This is such a fantastic story and this is how I see my situation playing out as well. My soon to be wife and I both have solid W2 jobs and want to do a series of house hacks over the next several years. We both graduated college in May and want to pay down some of our student debt and save more reserves first before we get started. Was the first house you bought a MFH or a SFH? Super inspiring, man.

Josh Young · Answer

@Michael Behr you should reach out to your loan officer and/or read your loan docs to know for sure, but most owner occupied loans say that you need to intend on moving into the property within 60 days of closing and you need to intend on living in the property for at least 12 months. With that being said I have moved in less than 12 months before, but the underwriters did need an explanation, which was that my family was growing and I needed more space, this was true and it satisfied the underwriters requirement. You should be able to do a small multifamily house hack as long as it's 4 units or less (5+ units doesn't qualify for residential lending). However, small multifamily (2-4 units) usually have more underwriting requirements when compared to a single family home. Talk to a lender and they will help you create a plan, if you learn the underwriting requirements it's a lot easier to figure it out.

Benjamin Sulka · Answer

Super insightful, Josh. That's a great way to think about it. Would love to hop on a call and chat about your experience sometime if you're interested!

Michael Behr · Answer

Good write up! I’mLooking to do the same thing. I have a va loan right now but wouldn’t mind moving and renting this one out. How long do I need to be in the current property? Is it just a year? I’m looking for a multifamily to house hack

Joshua Mchatten · Answer

Thanks for sharing! I found this post very informative & clearly written for a newbie like myself to understand. This post gave me more information to research & I love it! I'm eager to learn more & will be following more of your post.

Noah Corwick · Answer

Hi Josh,Awesome approach and is definitely one that I am starting to use in my investment strategy as well. Once it makes sense to refi, I will be renting my current house hack out and will be buying another property, etc. Thanks for sharing your story!

Gloria De la Fuente · Answer

Thank You for sharing! Great Ideas!