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22 Years Old: First Apartment Building Acquisition Done

T14

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Phenomenal progress. Congratulations!

Was wondering how you financed the reno. Was this cash you saved up over a period of time? PL? HM? Friends/family?
 
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G_Alexander

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@G_alexander

Phenomenal progress. Congratulations!

Was wondering how you financed the reno. Was this cash you saved up over a period of time? PL? HM? Friends/family?

Thanks, T14.

I used cash from work throughout the construction; while keeping my savings from prior deals in-tact and adding any extra cash earned right back into my fastlane pool of capital for my next set of deals / other projects. I took a look at the financing alternatives for the renovation, but ultimately decided to go with cash due to the fact that I planned to exit the property in approximately 1 - 2 years. I am now torn between selling and holding the property because the interest rates were so low when I purchased. I am locked in at 3.25% which in my eyes is free money. Cash flow is strong and tax benefits are good...I will likely refinance soon, but interest rates have crept up approximately a full point to 4.3% recently. Still, tapping the equity to purchase more properties has always been the goal. I am seeking additional apartment investments and a large scale mobile home investment plan.

Just need to keep my leverage at "sane" levels going forward; have learned first-hand from watching many investors in the past how too much leverage can destroy your empire.
 

Rickson9

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Thanks, T14.

I used cash from work throughout the construction; while keeping my savings from prior deals in-tact and adding any extra cash earned right back into my fastlane pool of capital for my next set of deals / other projects. I took a look at the financing alternatives for the renovation, but ultimately decided to go with cash due to the fact that I planned to exit the property in approximately 1 - 2 years. I am now torn between selling and holding the property because the interest rates were so low when I purchased. I am locked in at 3.25% which in my eyes is free money. Cash flow is strong and tax benefits are good...I will likely refinance soon, but interest rates have crept up approximately a full point to 4.3% recently. Still, tapping the equity to purchase more properties has always been the goal. I am seeking additional apartment investments and a large scale mobile home investment plan.

Just need to keep my leverage at "sane" levels going forward; have learned first-hand from watching many investors in the past how too much leverage can destroy your empire.

Great thread! Thanks for sharing.

If you don't mind me asking, what would you consider to be "sane" levels? 50% of equity? 75% of equity? Something else?
 

G_Alexander

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Great thread! Thanks for sharing.

If you don't mind me asking, what would you consider to be "sane" levels? 50% of equity? 75% of equity? Something else?

The short answer is: It depends.

When making an acquisition I would prefer to use as much leverage as possible up front (and buy the property as far under-market price as possible) then stabilize the operations to create a large equity position. Leverage amplifies returns and as much should be used as possible / sensible in each property acquisition scenario. How much leverage you can or should use will depend on the operations or potential operations of the property, the financing available and how long you intend to hold the asset.

If a property has solid margins and strong cash flow potential I am better off levering up to 90% LTV (10% down) with a combination of traditional and seller financing if available. Once the property is stabilized and your equity position has increased, it is time to refinance to pull cash out or sell.

It is when you get into a HOLD scenario that is important to consider leverage, i.e. the part where it is important to be "sane". If you decide to refinance your building the banks will only let you tap so much of your equity value to keep themselves protected. If you pull out every dime allowable by the bank (probably 70-80% LTV) it makes sense if you will be purchasing additional properties which can help contribute cash flow to your cause.

A smart investor will use the cash they pull out in a refinancing for additional cash-generating property / investments to create more cash flow, control more assets and have the ability to service more debt.

An unwise investor will use the cash to buy themselves fun things, thus "debt fudning" their dreams. In the second scenario, when the roof goes bad on one of your properties and you can't get a loan to repair it due to your over-levered position, you are shit-outta-luck and can kiss your dreams goodbye.

I want to avoid the latter scenario!

I am happy to talk about any financing questions, if you have any others feel free to shoot me a PM.
 
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Brentnal

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I read most of your threads today and F*CKING WOW, you are one real action taker it is amazing reading all the things you are doing/did on such a young age.
Rep ++
 

vitality11

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Thank you for the inspiration friend.
One step forward you take for yourself, helps us take further steps forward as well.
Great job leading by example. God bless.
 

21elnegocio

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jlwilliams

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Well done! I wish I'd bought an income property first. When I bought my first house I was married and all decisions were joint decisions, and her needs and wants all weighed heavily in my heart and mind. We did ok with our first house but a multi would have been a better move. We were also a little older than you at the time. I was 28 when I bought first house. At 20 I was spending my time and money on beer and weed. Seriously underperforming assets right there. I hope my son spends his young adulthood more like you did than like I did.

Anyway, good job. I'm going to go back and read your other threads. (Put "deals on wheels" on my kindle while I was reading this one)
 

G_Alexander

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Hey guys! Saw a couple notifications that this thread had gotten bumped. I wish you all a wonderful 2017 of hustling hard. Go out and GET IT!

I'm on a flight to China while writing this (on United Airlines wifi). This property appraised at $450,000 in September 2016 and I only owe $186,000. I took out a $100,000 HELOC on it which I'm investing into more brick and mortar business deals. Have tons of updates on my two businesses (eCommerce biz has grown 4x this past year, now hiring another employee... and my brick and mortar biz is opening our second and third locations this year). Lots to be thankful for and to look forward to in 2017.

Much love!
 

MJ DeMarco

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Thread marked GOLD ... this thread started before we began using GOLD and NOTABLE tags, it just slipped by!
 
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21elnegocio

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Hey guys! Saw a couple notifications that this thread had gotten bumped. I wish you all a wonderful 2017 of hustling hard. Go out and GET IT!

I'm on a flight to China while writing this (on United Airlines wifi). This property appraised at $450,000 in September 2016 and I only owe $186,000. I took out a $100,000 HELOC on it which I'm investing into more brick and mortar business deals. Have tons of updates on my two businesses (eCommerce biz has grown 4x this past year, now hiring another employee... and my brick and mortar biz is opening our second and third locations this year). Lots to be thankful for and to look forward to in 2017.

Much love!


No wonder you didnt reply to my text message lol, looking forward an update on your business ventures !
 

Scot

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Just found this thread. Incredible how well you've done. Definitely gives me a bit more motivation to look into RE.
 

ravenspear

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I thought you weren't allowed to use FHA financing to purchase investment properties.

If i can get an investment property with 3.5% down then I've been doing something wrong.

Edit: nm I didn't read the OP well enough to notice he said he was occupying one of the units
 
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FeaRxUnLeAsHeD

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Average starting salary for fresh out of college investment bankers in major metropolitan areas like Chicago/NYC will be over 100k.

Salaries in Investment Banking

Sorry I didn't know the background - did he start at 21 and do a full year as an I-banker? I know you usually need a full year of work income.

Reason I ask is because I'm 23, just graduated college 7 months ago, so this tax year I only reported like 25K - no way I will get approval for an FHA loan on a 200K + property.

If I work for this full year, I should have that number closer to 80-100K depending on a few opportunities in front of me right now in SAAS sales.
 
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RHL

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Credit history, assets, income. If you have a 795 credit score, paid off school loans, s new-ish car, and a $100,000/yr salary, they won't even blink to approve you for $200,000. You could probably get one for $500,000 or $600,000 with stats like that.
 

Envision

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How do you get approved on a 200K+ mortgage at 22?

I got approved for 185k when I was 20 making 30k/year with a 720 credit score - FHA allows lower income people to purchase a residential property when they have lower means. There is more red tape, you have extra insurance to pay because its a government backed loan but it gets your foot in the door with real estate!

I thought you weren't allowed to use FHA financing to purchase investment properties.

If i can get an investment property with 3.5% down then I've been doing something wrong.

Edit: nm I didn't read the OP well enough to notice he said he was occupying one of the units

FHA is owner occupied but residential includes 2-4 units. So you buy the property, live in it for a year, repeat, and rent out the property.

Credit history, assets, income. If you have a 795 credit score, paid off school loans, s new-ish car, and a $100,000/yr salary, they won't even blink to approve you for $200,000. You could probably get one for $500,000 or $600,000 with stats like that.

This. With a six figure income, low/no debt and good credit you can really create some great opportunities for yourself.
 

Envision

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Sorry I didn't know the background - did he start at 21 and do a full year as an I-banker? I know you usually need a full year of work income.

Reason I ask is because I'm 23, just graduated college 7 months ago, so this tax year I only reported like 25K - no way I will get approval for an FHA loan on a 200K + property.

If I work for this full year, I should have that number closer to 80-100K depending on a few opportunities in front of me right now in SAAS sales.

You might be able to get by on 25k/year but it depends on your expenses. What they look at is your debt to income ratio when seeing if you can get pre approved. You will need 2 years of consistent income and good credit.

You'd probably get approved for $130-160k at 25k/year keep in mind you're extremely leveraged, have hardly any equity, and are in a risky spot but it gets your foot in the door with low money down.
 
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FeaRxUnLeAsHeD

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You might be able to get by on 25k/year but it depends on your expenses. What they look at is your debt to income ratio when seeing if you can get pre approved. You will need 2 years of consistent income and good credit.

You'd probably get approved for $130-160k at 25k/year keep in mind you're extremely leveraged, have hardly any equity, and are in a risky spot but it gets your foot in the door with low money down.

If i'm doing between 60-100K reported income and have 40K student loan debt, what do you guess I could get approved for?

The 25K reflected an entry level salary + commission for half the year (was in school the other half) which will nearly double shortly (couple things actively in the works)

My credit is 750
 

ravenspear

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If i'm doing between 60-100K reported income and have 40K student loan debt, what do you guess I could get approved for?

The 25K reflected an entry level salary + commission for half the year (was in school the other half) which will nearly double shortly (couple things actively in the works)

My credit is 750

To be approved for a conventional Fannie/Freddie loan your back end ratio needs to be less than 45%.

Meaning all of your monthly debt payments including your mortgage payment cannot exceed 45% of your gross income. So take your gross monthly income, if we say 75k/yr that would be 6250/mo. Then multiply by 0.45, we get 2812. Subtract all of your existing monthly debt payments from this amount. The remaining number is the maximum housing payment you can expect to be approved for (consider mortgage + taxes + insurance in this number). Then you can use standard mortgage calculators to determine what purchase price you can be approved for based on interest rate, down payment amount, and that monthly payment.
 
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Envision

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To be approved for a conventional Fannie/Freddie loan your back end ratio needs to be less than 45%.

Meaning all of your monthly debt payments including your mortgage payment cannot exceed 45% of your gross income. So take your gross monthly income, if we say 75k/yr that would be 6250/mo. Then multiply by 0.45, we get 2812. Subtract all of your existing monthly debt payments from this amount. The remaining number is the maximum housing payment you can expect to be approved for (consider mortgage + taxes + insurance in this number). Then you can use standard mortgage calculators to determine what purchase price you can be approved for based on interest rate, down payment amount, and that monthly payment.


Im not an underwriter but I believe this explanation is pretty dang good for getting a feeling for what you're looking at. Id recommend finding a good loan officer and seeing what he can workout. I got mine up to 49%.
 

RHL

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