All Forum Posts by: Jon Dawes

Debt to Income ratio limits exist for a reason: you are over leveraged. Get your DTI down and then start finding investments. Start with getting rid of high interest, "dead weight" debt ( cars, credit cards, personal loans, student loans, etc.). Then build up reserves and investment funds. THEN start looking at investment choices.

How did the 700 credit score get so low?

Hi Jon,

I consulted with a good friend of mine who is a lender and also a real estate investor. Richard Advani with Guaranteed Rate is not only one of the best lenders and strategists I know, but he and his wife are also investors owning 22 units.  

Check out what Richard had to say about your question...

A couple things to note for this scenario

1. It will be tough to get “primary home” financing on a duplex if you already live in a single family home. Typically underwriters find it hard to believe that a person will downsize and actually move in to a duplex. That being said, its not impossible. If the client is truly going to occupy the unit and the duplex is say closer to his work or family and the move itself makes sense, he very well could use primary home financing at 5% down to purchase an owner occupied duplex.

Do we, instead, put as low a down payment as possible (owner occupied financing) and buy several cash flowing REIs to cover as much of the new higher mortgage as possible, using the chunk of equity from the sale of the SFR?

The overall goal is to do the traditional 'stack' over the next 5 years (duplex this year, double the number doors each year for 5 years, a la Multifamily Millionaire).

Implementing the above strategy isn’t quite as simple as his understanding. He could possibly put a low down on a “primary home” duplex however each subsequent duplex would require 25% down if done in the near term (assuming he sold his primary home which is the best path to accomplish his goals in my opinion). In order to use “primary home” financing repeatedly, the new purchases would have to make sense and be upgrades from the existing duplex. I.E. He purchases a duplex primary home this year and in 1-1.5 years he purchases a nicer larger 2-4 unit, maybe in a more desirable area – that would make sense and generally get approved with primary home financing assuming of course he was going to occupy a unit.

The whole strategy he plans to employ requires a "move-up" each new purchase and he already has a SFH which causes a big hurdle in the "move-up" strategy so once again selling that would behoove him.

The plan he didn’t mention which is really the only plan that will work in the short term is:

Sell current primary home

Purchase owner occupied 2-4 unit with 5% down

Purchase additional; 2-4 units with 25% down with the remaining proceeds from sale of primary

I am happy to make an introduction to Richard if you would like to discuss further. Just DM me and I will make it happen. 

@Jon Dawes

I personally prefer liquidity and flexibility and like you said so many variables which is why it's never clear-cut in personal finance.  

I've done this.

I had ~$50k in savings but supplemented it with a $130k HELOC.

Then I started buying SFH's in Detroit for $40k-$55k, putting a little work into them, then refinancing after the seasoning period. That was 2019... prices are higher then.

I ended up building a 12-door rental portfolio in 2.5 years doing this. It was hectic, a lot of work, and had some challenges. But that portfolio now generates ~$16,500/mo in gross rents.

It's also gone up 2.5x in value and I have literally nothing invested in these properties at this point.

I would look into buying small businesses. Real estate everyone is trying to make a buck in, and it makes the "market" unsophisticated on the buyer and seller side where each is trying to push and unfair deal most of the time. You can buy a business with that money and replace your income fairly easily compared to buying properties. You need much more capital for real estate, as it is a wealth protection and cashflow engine for large sums of money when done right IMO 

I've been a real estate investor (multifamily, land, CRE) for 2 decades but have been working on a concept to purchase multiple properties in the US and around the world. The shareholders own and build equity while living in the properties.

Not selling anything or looking for money (right now!). Just wanted some feedback from any other BP members who are location independent, have worked with co-ops, international RE, or just curious.
Thanks, George

I've never done student housing on the landlord site, but I did live in a house with 7 bedrooms and an apartment out back that used to be the detached garage.

Overall, a positive experience, but here are a few things to consider:

1) You want everyone signed "jointly and severally liable" for the rent. Meaning that if the rent is $2000 and there are 5 students, then even if one of them leaves the rent is still $2000, and the four remaining students need to find someone else if they don't want to cover the missing roommate. You're not going to go chasing rent from 5 different people. I'd also demand co-signers (parents, most likely), in case things go south you'll have someone with money who is collectible.

2) There must be a plan for common area upkeep - kitchen and bathrooms get dirty fast.

3) Competition around schools where I'm at is stiff. So is demand. That means these properties can cost 2-3x what comparably sized home further away run.

4) Find out what your state's laws are on collecting rent in advance. A lot of students get their grants, scholarships, or loan money in a lump sum at the start of the semester, so if you can get them to pay you a semester in advance that works out nicely.

5) My rule for security deposit is nothing gets refunded until everyone moves out. 

6) I would set rules about "quiet hours" and guests. You don't want to end up becoming the party house. I saw plenty of those when I was in school, and it wasn't a pretty sight.

7) Pick on person to be your primary contact so if you need to communicate everyone that one person gets the word out. For example, if the bathroom is having a problem you might need to shut it down for several hours while repairs are made.

Good luck!