Quitting Your Job Using Rental Properties - Day 15

2/24/16  Wednesday - Day 15

     So Gibo finally called Angela back yesterday while she was getting her nails done.  She couldn't really talk, plus she doesn't know much about finances, so she couldn't really answer Gibo's questions.  So she texted me his number to call him.
     Gibo asked me some questions about where we were planning to buy and if we had already talked to a bank.  He said he would send me his email address so that he could go over our preapproval letter.  He also mentioned that you should never use any of your own money when buying a rental property.  I'm not so sure that I understood what he was saying, but it sounded like this - he just through some numbers out there:

1. Buy a house that's worth $80k for $60k
2. Put a down payment of $12k ($20k)
3. Your mortgage balance is $48k.
4. Immediately refinance the home for the $80k that it is worth.
5. Pay off the $48k, leaving you with $32k cash
6. Pay yourself back the $12k down payment.
7. That leaves you with $20k for repairs/profit.
8. Rent out the house.

     Seems like a pretty good plan.  It just seems too good to be true.  How come everybody is not doing this?  Can you immediately refinance your home?  How hard is it to find houses for sale with so much equity?
     The last thing he mentioned was that the first thing we need to do to get started is form an LLC.  So Angela and I have been working on figuring out how to do that, and thinking of some names.  I like "La Tierra Dorada"; "El Dorado"; and "El Camino Real".  Angela is coming up with some dumb names.  The easiest way is to use Legal Zoom to form your LLC, but I think we can do it ourselves to save money.  Angela has contacted some of her former colleagues from when she used to do legal work to see if anybody can help us out.  So, we'll see where it goes.

 Please check out my website for my other side business/hobby. www.yrlenterprises.com and at facebook.com/yrlenterprises

Quitting Your Job Using Rental Properties - Day 10

February 19th Friday - Day 10
     Yesterday, my wife and I had a phone meeting with our financial adviser, Scott.  I just wanted to see if he had any advice four our new endeavor, and what his advice might be.  Or if he would be for or against investing in real estate.  If he is adamantly against it, then it may be cause to reconsider. 
     So we started off with some small talk regarding choosing an accountant to do my taxes, and how I am not concerned about the recent decline in the stock market, since we are in it for the long haul.  Then I ran the idea of investing in real estate by him.  He said investing in real estate is a great idea, and the only reason why it is not feasible for him is because he lives in Austin where property values are ridiculously high.  He went on to do a quick assessment of our financials either mentally or what he had in front of him.  He warned of the risks of not being able to pay the mortgage if the place is not rented.  Then he said that although it is our money and we can do what we want with it, he didn't think we were in the position to proceed with buying a rental property.  I said OK, and proceeded to explain to him the research I have done and why I think it is a perfect time to invest in real estate in Corpus Christi.  Once Scott realized that this is not just something that I am just jumping into, he commended me on the research that I have done and said it looks like we are headed in the right direction.  He even offered to put us in touch with a mortgage broker who can search and find banks willing to lend us money at the best rates possible for us.  I definitely plan on using him.
     Our plan is to proceed with purchasing our first rental property.  I told my wife Angela to go ahead and contact her cousin, who is married to a realtor.  At this point, we do not have any problems with working with a family member.  That may change later on.  Angela contacted her cousin, we'll call her Elsa, who said that they did not have a problem working with family members either.  So we are expected to hear from Elsa's husband, we'll call him Gibo, to see if we can meet with him and hire him to be our realtor.

Please check out my website for my other side business/hobby. www.yrlenterprises.com and at facebook.com/yrlenterprises

Quitting Your Job Using Rental Properties - Day 6

2/15/16 - Monday
     I finished reading the 2 Million in Real Estate in a Year book over the weekend.  I really enjoyed it.  I learned some things, but a lot of the info was familiar.  Which makes me think I am ready. 

Please check out my website for my other side business/hobby. www.yrlenterprises.com and at facebook.com/yrlenterprises

Quitting Your Job Using Rental Properties - Day 5

February 12, 2016 - Day 5
     Today, I heard back from Jessica.  I'm approved!!  Jessica's bank approved me for a $120k loan at 5% interest rate.  I will have to put down 20% minimum.  That means I can afford a house for up to $146k.
     I had to fill out a "General Authorization Form" which allows the mortgage company to gather personal information from my bank (which happens to be the same entity).  I also had to e-sign a "Uniform Residential Loan Application" and a "Notice to the Home Loan Applicant Credit Score Information Disclosure"
     I had to sign, scan, and email the "General Authorization Form" back to Jessica.  When I did, I asked her what my next steps would be.  I did not hear back from her.
     I sent an email to Hank letting him know that I was preapproved by another bank, but I still want him to continue to try and get me approved.  I'm not sure if this was a good move or not.  I thought about it, and just went on my instincts.  I'm not sure what advantages or disadvantages an email of this type has.  I also told him that there were a couple of reasons why I would prefer working with his bank.  I didn't tell him the reasons, but they are 1)They are local, and I can sit down and have a conversation with him if I want to, and 2)It is the same bank that I used to finance my primary residence, and I enjoyed the experience I had with them.
    The great new is, I'm approved!!!.

Please check out my website for my other side business/hobby. www.yrlenterprises.com and at facebook.com/yrlenterprises

Quitting Your Job Using Rental Properties - Day 4

2/11/16 Thursday
     I hadn't heard back from Hank yet regarding my pre-approval, so I called his cell and office right before lunch.  He didn't answer, so I left messages.  Around 1pm, he called me back.  I told him that I was just wanting to follow up and see what the status was.  He said he was actually reviewing my stuff at that moment, and he would let me know something by the end of the day. 
     He called me back at 4:30pm.  He said he ran my information through an automatic approval system, and I did not qualify.  He said the reasons were likely due to:

1. Derogatory Items on my credit.
2. Length of employment at my current job (7 months)
3. High debt/income ratio with a second mortgage (48% - normal max is 42%)

     He said he is still going to try to get me approved, we just may have to get creative.  I'm not sure what he meant by that.  His underwriter is off tomorrow and Monday is a holiday (President's day), so he said he will talk to her on Tuesday and let me know what she says.

Please check out my website for my other side business/hobby. www.yrlenterprises.com and at facebook.com/yrlenterprises

Quitting Your Job Using Rental Properties - Day 3

2/10/15 Wednesday
Day 3.  Today, I did some research into the advantages of leveraging.  I currently have about $50k in equity on my primary residence.  I have read several articles that state that you should try and use as little of your own capital as possible.  With the simple calculations that I did, it seems more advantageous from a cash flow perspective to use your own capital as a down payment.  I still have some homework to do though. 
My current plan is to buy enough rental properties to replace my current income of $90k a year.  When I do that, I will quit my job.  Simple calculations to accomplish this include the following:
I figure I can collect $1500 a month for rent.  I estimate monthly expenses (including mortgage) to be $1000.  $90k/12 is $7500/month.  $7500/500 = 15.  So I will need 15 houses to replace my current income.  My goal will be to buy 2 houses a year minimum.  That makes this a 7 year plan.  Then, as the mortgages are paid off, that's more monthly cash flow for me.  This is an evolving plan, and something for me to look back on in the future and see how my plan has evolved.
I also continued reading 2 Years to a Million in Real Estate.
Still waiting on responses for pre-approval from the bankers.

Please check out my website for my other side business/hobby. www.yrlenterprises.com and at facebook.com/yrlenterprises.

Quitting Your Job Using Rental Properties - Day 2

2/9/15  Tuesday
    Today is the second day on my road to retirement with real estate.  The goal is to replace my current income with income from rental properties.  I continued reading 2 Years to a Million in Real Estate.  The book has a ton of useful information.
    I heard back from the online banker who lives 400 miles away today.  We'll call her Jessica.  She sent me an email that simply said, "With your credit score of 640, you will need to put 25% down."  Then she asked for the same documents that Hank asked for yesterday.  I got the feeling from the tone of Jessica's email, that she was not really interested in working with me.  I sent her the info she requested anyway, because it's not about what she wants, its about what I want.  We'll see how she responds.
     I also sent Hank all the information that he requested yesterday.  I asked my wife yesterday to gather all the documents that Hank had requested.  She gathered them nice and neat on Sam (that's what we call the table near our front door) and left me a note.  Well me being the oblivious male that I am, walked right passed them on my way to work and didn't see them.  So, on my lunch break, I hustled back to the house and picked them up.  I used my work scanner to scan them in and sent them off to Hank.  He said he would review everything and let me know if he needed anything else from me. 
     And that's pretty much it for the second day.  I'm still excited.

Please check out my website for my other side business/hobby. www.yrlenterprises.com and at facebook.com/yrlenterprises.



    

Standard Questions your Mortgage Banker will Ask

Here is a list of questions that will be asked by your banker:

 

1. Are there any outstanding judgements against you?

2. Have you been declared bankrupt within the past 7 years?

3. Have you had property foreclosed upon or given title or deed in lieu thereof in the last 7 years?
 
4. Are you a party to a lawsuit?

5. Have you been obligated on any loan which resulted in foreclosure, transfer of title in lieu of foreclosure, or judgement?

6. Are you presently delinquent or in default on any Federal debt or any other loans?

7. Are you obligated to pay alimony, child support, or separate maintenance?
 
8. Is any part of the down payment borrowed?

9. Are you a co-maker or endorser on a note?

10. Are you a U.S. citizen?

11. Are you a permanent resident alien?
 
12. Do you intend to occupy the property as your primary residence?
 
13. Have you had an ownership interest in a property in the last three years?
 
14. What type of property did you own?   Principal Residence Second Home Investment Property  Principal Residence Second Home Investment Property

15. How did you hold title to the home?   Sole Ownership Jointly with Spouse Jointly with Another   Sole Ownership Jointly with Spouse Jointly with Another 

Quitting Your Job Using Rental Properties - Day 1

2/9/16  Monday
    I had been researching, thinking, and contemplating getting into real estate for a couple of years now.  My parents own rental property, my wife's parents own rental property, so it just seemed natural for us to follow.  Yesterday, I took the first step.  I contacted a couple of bank mortgage officers to get pre-qualified to buy a rental property. 
     The first person I contacted was an on-line banker who works for the bank that I currently have my checking and savings accounts with.  It is a small bank, so the nearest mortgage banker is at their corporate headquarters 400 miles away.  Anyway, she emailed me a form to fill out, which I did.  I have not heard back from her.  I will update on future blogs when I do.
     The second person that I contacted was a local banker, we'll call him Hank, who works for the same bank that loaned me the money to purchase my primary residence back in 2009.  I was able to reach him by phone and got better response.  Hank asked me a few questions to estimate my income, debt, and assets.  He also asked me some standard questions which you can find here.  Then he asked for my SS# to check my credit, which I expected he would do, so it wasn't a problem.  The problem was after Hank checked my credit.  I knew there were some bad marks on there.  I had been monitoring my credit for about a year through Experian, in anticipation of this day.  Experian said my credit score was a 690.  A little low I thought, but I had no doubt that I would be able to raise it over 700 before the time came to purchase, so I was ok with it.  To my surprise, when Hank called me back, he said my FICO scores ranged from 640-670-690, and they have to use the middle one.  I may need to do a little more work on my credit before I proceed.  I will find out soon and let you know on a future blog.  So, my advice would be to know ALL 3 of your credit scores before you contact a banker.  You probably already know that the higher your credit score is, the lower your interest rates will be, or possibly less money to put down up front. 
     After explaining over the phone the reason for some of the delinquent items on my credit report that have or have not been cleared up, Hank sent me an email in which he requested hard proof of some of the things I estimated during our very first phone conversation.  Below is a list of what he wanted:

• Copy of the last (2) years tax returns along with copies of all W-2's.
• Copies of the last two most recent pay-stubs - with year to date information
• Copies of the most recent bank statements for all deposit accounts
• Copy of Social Security Card
• Copy of Driver's License
• Mortgage Statement - A copy of my most recent mortgage statement for my current residence
• Insurance and Taxes - A copy of both homeowner's and windstorm coverage along with a copy of paid property taxes.

     So I printed out my pay stubs, made copies of my driver's license and SS card, and called my wife to begin working on the other things, since she's our household record keeper.  Hank said he would be working on his end, while I was working on mine.  I also downloaded an ebook called, 2 Years to a Million in Real Estate, by Matthew Martinez.  I'll keep you updated on whether this book is helpful or not.
     And that's pretty much it for the first day.  I am excited about this endeavor and will be posting blogs in the future as I continue. 

Please check out my website for my other side business/hobby. www.yrlenterprises.com and at facebook.com/yrlenterprises.