All Forum Posts by: Account Closed

@Rachel De Faut at Sea River Realty has been my RE agent/Broker and property manager in ILM since ~2011. I've been generally pretty happy with her as my property manager. I've occasionally had minor complaints, but less than I've had with other managers, and she's been responsive to my concerns. She's extremely hard-working and definitely knows how to hustle when it's crunch time. Getting a vacancy rented has not been one of my complaints. I can recommend her.

You can find Rachel here on BP, or you can Google her company name.
I hope that helps,

Good luck,

Joe 

I'm a simple man.

Anything I have a hard copy of goes in my filing cabinet. 

Digital docs go in a folder on my laptop. 

I keep track of income and expenses on a simple Excel worksheet. 

I used TurboTax for years. 

Just this year, I'm finally switching to a CPA since my tax situation has gotten complicated. 

I hope that helps.

Joe

Hi Brandon,

Have you tried mainstream Freddie/Fannie-backed lenders?  You should be able to use your last 2 years of tax returns + a percentage of the income represented by leases on your rentals.  This has been my experience. I've found Provident Funding easy to work with, and I find their online rate estimator very user friendly. Also Zillow's mortgage site is easy to use, though now you have to switch tabs to "rates" to get past their irritating interface... 

Good luck,

Joe

Yes, you need to acquire the replacement property with at least as debt to avoid "mortgage boot". 

 Hi Brandon,

I noted the mortgage and equity numbers but didn't see much help there. I'd only refinance if I could get a significantly lower rate, and any cash-out available would be a bonus. Here's why I don't see that helping as a first step in your case. On my mortgages, I want to best terms and lowest cost since I expect to hold them long term and they impact subsequent borrowing DTI calculations. That implies I can only use 80% LTV on a primary residence. At your estimate of $216k, 80% would be $172,800. After loans fees and such, you'd only have a few thousand, not even enough to pay off the debt. Sure, you might be able to get a mortgage for a higher LTV, but you'll pay a higher rate and higher monthly payment - the higher payment impacts DTI calculations and the higher rate erodes wealth building.

The first thing I would do is stop paying any high interest you're paying. You have a good salary from your job, you should be able to pay that down aggressively, aggressively curtail spending even if just temporarily.  If any of your credit cards regularly offer 0% balance transfer options, use them to stop paying interest. You don't have to pay off all the debt (depending on DTI calculations). My goal would be to get it below 30% utilization so your FICO will improve and have any remaining debt at 0%. Two benefits of only having 0% credit card debt: first is obviously low cost, second is minimum monthly payment is lower, helping in your qualification for subsequent mortgages (DTI calculation). FWIW, I find Chase, Discover, Citbank the most helpful with regards to 0% offers. Chase is the best, 2% BT fee for generally 12-18 months at 0%. If you don't have a good 0% card, you might slip in a carefully selected credit card application into your strategy.

Once your credit card debt is tidied up, I might refinance the mortgage on the primary residence for a better rate. 30-yr fixed is the safest and best if you don't like surprises. I actually opted for a 5/5 ARM since it's cheaper for mortgages held for ~13 years or less, even in the worse case scenario. Initial rates and payments are very low, I got mine at PenFed. But I'm super clear that in the worst case scenario I'll be paying down the principle balance aggressively before each 5 year reset of rate so as to not pay higher monthly payments.

Once you have consumer debt minimized and/or at 0%, maybe the home in a lower cost mortgage, note you'll already have at least $500/month in greater net income. That's more that you're first rental will net. You'll be building wealth before your first rental...:) Then start saving for the first down payment.

Keep in mind that for the model you're describing - purchase of TK rentals, you probably need 25% down payment and need to qualify for the mortgage on the rental without the help of the rent from the rental. So for DTI calculation you'll need to be able to cover your primary residence PITI (principle, interest, taxes, insurance), the rental PITI, and any monthly debt obligations using only ~43% of your gross monthly income. The obvious question is why can't you use the anticipated rental income to help qualify. Well, the answer is simply that the rule.

I hope this all helps. I should mention that I make up my own strategy, so others will have other opinions. Best of luck!

Adding to the excellent response from @Jason V.

Consider this @Brandon Johnson: 

If you are paying an average of 24% interest rate on your personal debt, that's about 2% per month. So on your 27k of debt you're paying $540/month. That's more $ per month than you can expect from a $100k rental property. So, your first step to building wealth is to stop paying that interest, by any means necessary.

Not all debt is created equal though. I carry a lot of credit card debt and have for years. In my case though, that debt is all at 0% interest rate (after 2-3% balance transfer fees) and was only used to buy real estate (fixers we rehabbed, then put into rental service) and returns a greater ROI than the 2-3% interest rate I'm effectively paying on the debt.

So if your debt represents some emergency borrowing that you're paying down aggressively, no big deal. Continue paying it down and once paid off save for investment. If it represents lack of financial discipline, make note of it, and change accordingly. As Jason noted, it's a lot easier if you can quickly save down payments.

If you're paying high interest and can't pay off that debt in a very short time-frame, I'd be happy to offer input on which credit card lenders in my experience are most likely to offer 0% balance transfer offers. For example, Discover, Chase & Citibank perpetually are sending us 0% offers with various terms for our existing credit lines with them... depending on which cards you have, some lenders might be best to pay off first so you can then transfer higher interest debt to them at 0%...

I hope this all helps - best of luck! 

 To add to Ben's list:
step 1: get your financial house in order, don't take on debt unless it's to buy RE, save some money. (it's a lot easier to buy investment property with 20% down payment).

Good luck!

 I was inspired by an investor that made a nice profit flipping the house next door to me in 2009. I thought I could do the same.
I had virtually nothing to start with. I did a cash-out refinance on my primary residence for a few $, but most of my funding was in the form of 0% teaser rate credit cards (Google AOR, app-o-rama strategy). I quit my day job and bought a heavy fixer down the road. I renovated it, moved into it, and did a cash-out refinance to pay off the credit cards and help fund the next project. I'm buy & hold primarily, so my original primary residence became my first rental. 

Using 0% credit card offers got me quite a ways down the road, then a few personal loans from family, now I'm evolving into getting beyond credit cards and into traditional mortgages on rentals.  

@Samuel Lynch, I'm also an out-of state investor. To determine if a particular location will be a good choice, I use Trulia's crime map, Google street view, and input my my RE agent/broker/property manager, @Rachel De Faut. I recommend her if you need a RE agent or property manager. 

There are plenty of blocks and small areas I avoid, but they are very localized. A few of my properties are close to higher crime areas, but on relatively quiet streets. I avoid the sketchiest areas, my criteria is I only invest in houses I'd be willing to live in, on blocks I'd be willing to live on. I mostly have modest entry-level 3/1s. I've found demand to be consist, we've generally had no real problem finding suitable tenants quickly. I think 2/2s would be fine. I'd expect 2 adults, maybe roommates, or young family as tenants. All my properties are SFR, but multis are fine - I'd buy one if the math and property looked good. I'm assured by Rachel, that duplexs she manages are fine, maybe a few $ less per sq ft, but with slightly better overall ROI. I've had a few students as tenants, no real difference in my experience as long as you do some basic screening & due diligence.

I hope that helps. I'd be curious to hear your experiences if you buy in the area,

Joe

@Jordan L., that's a pretty comprehensive list of work. Sounds like it might be overkill to me. I think how much would be enough depends on the specifics of the home, terrain, etc, and how much assurance you want that you'll never have a moisture issue again.
Depending on what you're looking at, I might be tempted to just go with the vapor barrier, and maybe a sump pump or dehumidifier. I'd probably add the floor insulation since it also reduces energy costs for whoever is paying the power bill. 
Another consideration is total cost/value of the home. A good solution for a $50k home is probably different than for a $500k home...
Good luck!