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REAL ESTATE REI Startup

JScott

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As I mentioned in a previous thread, I just quit my corporate job, and now it’s time to figure out what to do next…

I actually plan to start several ventures, one of which I’m ready to discuss. As the folks on this forum probably know, I’m very much interested in real estate, and believe that RE investing – when done right – is likely the most reliable path to wealth. So, I’ve decided to put the study I’ve done over the past many months to work, and start a real estate investment company. Additionally, I want to help others who may have an interest in real estate investing by sharing what I’ve learned, and sharing my ongoing saga of trying to build a successful investment company.

To do that, I have created a blog (http://www.reistartup.com), which I plan to use to both educate others about real estate investing as well as to document my attempts at becoming an RE investor. For the most part, I’ll be posting every day, and will be going into plenty of detail about my day-to-day progress. The site also has sticky sections that cover things like financial analysis, my business plan, and tracking of my ongoing RE goals. And I have a Resources section where I’ve links to various RE resources that I’ve found helpful.

In the Resources section, I have linked to both this forum and to blogs of some of the members of this forum. If you have a blog or a website that is RE related, let me know and I’ll add a link. And feel free to link to my site as well… J

I’m not looking to make any money off this site, and will continue to post as long as it appears I have a decent readership. So, don’t hesitate to give me feedback on anything from layout/design to blog topics to writing style. I’m always open to suggestions.

I hope you enjoy!

http://www.reistartup.com
 

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Yankees338

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I'm looking forward to reading about your "saga".

Rep+++ for retiring from your job and getting started on your new journey.

Best of luck to ya! :cheers: (The one on the right is filled with juice for me! :))
 

Tony

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Sounds like you have been planning this for a while. I look forward to reading your blog..
Best of luck to you
 

lightning

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As a new real-estate investor myself, I look forward to reading your blog!!! Best of luck! :)
 

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Good luck Jason!:thumbsup:
 

mtnman

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Congrats on kicking the BOSS from the other thread! :icon_super:

Not that this really needs to be said toward your particular endeavor (the opposite is derived from your character, which I respect very much by the way), but be sure not to give in to the pitfalls of switching from someone else managing your time to your newfound freedom.

I have made this mistake in the past when becoming an S, when I didn't even know what an S was. lol

And I mention it only as a reference for others staring at new forms of freedom. Or, so they may think, as I did.

I like the blog, nice and CLEAN, with easy navigation. I subscribed to your feed and look forward to your knowledge and success, as it has been much appreciated around here!

If you want a few of us to post some questions/replies to get the ball rolling, just say the word. In my predictions, a following will not be a problem however.:)
:fastlane:
 

ryanpal

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good luck jscott. look forward to reading as well

you're blog says you'll be living in atlanta. i just came back from a wedding in acworth this weekend. weather it's a good place to invest right now, i'm unsure (i haven't researched the area yet), however i can tell you there's tons of building going on there so it might be worth taking a look.

feel free be in touch for possible networking. although i'm pursing REI in NJ perhaps our paths can cross somewhere down the line.

ryan
 

hakrjak

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Good stuff!

With the credit crunch right now, it's becoming really hard to get financing for houses even if you have a good paying job -- and now most banks are requiring 10%+ down instead of the 0-5% they used to accept.

What's your plan to overcome this now that you've left the day job, and won't be able to report any income when you go to get loans? Use the wife's income? :)

Cheers,

- Hakrjak
 
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JScott

JScott

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With the credit crunch right now, it's becoming really hard to get financing for houses even if you have a good paying job -- and now most banks are requiring 10%+ down instead of the 0-5% they used to accept.

What's your plan to overcome this now that you've left the day job, and won't be able to report any income when you go to get loans? Use the wife's income?
Good question, and one I haven't fully figured out at the moment...in fact, I have a blog post coming up soon related to this...

A couple things that will hopefully make the situation a little better:

- I do have plenty of cash in the bank. While I certainly wouldn't want to start buying property at 0% LTV (and don't have enough that I could buy multiple large buildings), I can make relatively large (20-40%) downpayments that -- in combination with strong business plans for the properties -- will hopefully help with traditional lending;

- I will be starting at least one "traditional" business this year (as will my fiancee), and while it may take a while to establish significant income, I imagine that I would have at least some income in 6-12 months that would help to satisfy lenders;

- My credit score is 810, so if there are any obstacles that great credit can overcome (and I'm not sure if there are or not these days), I have that on my side;

- I will likely be creating tenants-in-common partnerships to acquire my first few properties, and could potentially leverage the credit-worthiness (and income) of my fellow partners;

- Hard money lenders are a potential short-term conduit for acquisition financing;

But I agree that this could potentially be a major issue, and would love any suggestions anyone else might have!
 

TaxGuy

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wow you stole my idea :notworthy:

but yea I'm in the same boat, well probably lower down the chain though since a) I have not been collecting info for the past few months, b) my credit score is "only" 709, c) I was self-employed and now un-employed....

so it'll make for some good reading/learning material as I need to not only build a startup myself for some type of income BUT also start to tap into the equity of my home right now to invest in more property... at the moment I have 2 roommates and might get a 3rd to help pay the mortgage for the time being so I don't have to get a j-o-b... especially since I read an article in the business section of the local paper that was stating about how hard it is for recent college grads(graduated in Aug '07, but went straight into the biz I was running until it closed a few weeks ago) to get good jobs now and it pretty much made it sound like "take what you can get, beggars can't be choosers"(even though having a degree from University of Illinois, a top public university, shouldn't make me a "beggar")

either way, rep+++ :hurray:
 

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hakrjak

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This is going to be a tough... although fun row to ho, I'm sure ;) I look forward to monitoring your progress. Here's a couple of notes:

I would have probably started before I quit my job, so I could get a couple of loans pretty easily before jumping out there into the uncharted waters. The first couple questions a mortgage broker always asks is "Where do you work, What's your income, how long have you worked there, have you been in the same job field for 2+ years?" etc, etc...

In any event, you're "out there" now -- so you've got to make it work, if you're going to be successful.

Income produced from a business probably won't be something the bank considers until the business has been established for 2+ years.... And Hard Money Lenders are equivalent to loan sharks or mafia made men ;) You don't want to mess with them, if you can avoid it. My credit is similar to yours, and I have a job in a field I've worked in for 10+ yrs, and the bank still wants 10% down (minimum) from me to do any investment property deals right now.

My suggestion would be to keep the wife working for awhile longer, until you can get 2-3 properties done in her name @ 10% down, before she quits her job and shares the bleak lending situation you're about to go through ;) Then you can worry about putting 20-30% down as necessary to whoo the bankers (If they'll accept that with no verified income) This will also help down the road, because if you hit the 10 property limitation, you are going to want to have some properties in her name anyway to keep you under that restriction.

Also prey the Feds do something to loosen up credit & lending.... This crunch can't last forever, and it's just a matter of time before 0-5% down money becomes easily available again I hope ;)

Cheers,

- Hakrjak
 
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JScott

JScott

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This is going to be a tough... although fun row to ho, I'm sure ;) I look forward to monitoring your progress. Here's a couple of notes:
Some great advice...very much appreciated!

Unfortunately (for me :)), my fiancee has already quit her job as well...so I agree, it's going to be a challenge...but I appreciate all the info!

Rep++ for your help
 

phlgirl

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WOW, JScott!!! Congrats on the Big Move!! I wish you every happiness and success in your new venture.

I share Hakrjak's concerns about your financing. Unfortunately, even with gobs of money in the bank and great credit, the banks still really want to see a solid, ongoing stream of income to support the payment. You will have to find a clever type of stated income program. Keep looking......you are bound to find something.

In the meantime, if possible, make that first purchase while you still have 2 current pay stubs and verification of employment! Hopefully, you have a company of your own which has been in existance at least 2 years?

Again, best wishes to you and your fiance in your future endeavors! It is a great time to buy.
 

TaxGuy

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I ran into that obstacle while I bought my first house, I was in biz for a few months, did not have the 2+ yrs of experience AND the job I was at b4 I had to state 2yrs of employment, thankfully my parents gave me a good price on the house(what they OWED, not what market value was) so I was able to get it since the LTV was around 70-75% and gift of equity covered about a 25-30% down payment.

either way, it looks like I'm gonna have to build an income stream b4 I get into hardcore REI unless of course I can find other avenues to invest, dare I say it, like the infomercials say in the tax-lien/foreclosure market... I know one of my friends has 4 properties he got on the cheap in foreclosure BUT he has a graphic design biz that he's been doin atleast as long as I've known him(~6yrs) and he's used the equity in first his townhome and then his accumulated properties to leverage the purchases.
 

lightning

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Jscott,
I think its great what youre trying to do! :) Going off Hakrjaks reply, I agree with alot of what he said.

I just recently bought my first investment property, and the mortgage broker I went through is on a "friend" level with me because I am best friends with his bosses son. Even with that on my side, it was VERY tricky to make a loan "work" for me. Because my salary basically covers the mortgage/bills on my primary residence, one of the first things he asked me in the approval process was how I planned to cover the new property (a $1500 mortgage) on my current income. I agreed to put down 10%, I offered to produce the leases of my tenants who would be renting the property BEFORE I closed, as well as proof of every single assett I owned (car titles, my 401k, my mutual fund account, my stock account, savings, etc.). Even with ALL that AND a 765 credit score, he still had trouble getting my loan approved because of how tight this credit industry is. An investment property loan for any less then 10-20% down is unheard of right now, so its great you have savings to ensure that is not a problem! :)

It probably would have been better to secure a quick loan/property before leaving your job, however we gotta work with what life throws at us so now you gotta find a way around that. :)

My advice is to round up proof of everything you could use as an assett, so you have some "wealth" behind you to prove you are not a huge risk to the bank if the property goes unrented. Once you have one property under your belt, it should be easier to attain another one because after 6-months to a year, you should be able to use those rental payments as proof of income. In my case (because I had NO history of renting or managing property before), i had almost nothing to show them in terms of how I could afford the extra mortgage payment, which is why my loan was so dificult to get approved.

Overall, your mortgage broker will definitely have to get a little creative in structuring the loan for you, but with a great credit score like that and an easy downpayment, I think you will be okay. (as I said, the first one should be the hardest!).

Best of luck man and keep us posted!!! :)

-Mike
 

kingwizard

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Jscott, my hats off to you for making a big decision. What you did is what most newbie REI want to do when they start RE. Yes, it may be a challenge at first, but stick with it and never give up. Always keep your eye on the prize and you will succeed.
One of my favorite quotes is "begin with the end in mind"-I forgot by who.

Now, full speed ahead! :fastlane:
 
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JScott

JScott

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Thanks everyone for the kind words and encouragement...I realize that there will be some challenges, but I know there are people in much worse situations who have been wildly successful at this, so I'm certainly not going to complain about my circumstances...

I do however, greatly appreciate all the fantastic advice!
 

hakrjak

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A note on "Stated Income" lending programs... Stated income programs seem to be all dried up now... A couple of years ago, you could get one very easily, and that was mostly what I used to finance my properties... Now the ones that do claim to still be "stated income" will actually require that you produce tax returns to prove your business income if you walk in and tell them you want to state income from a business, etc... Therefore they are not true "Stated Income" programs.

Partners... Prosper.com... are a couple of suggestions to investigate.

Although I think most would be hard pressed to partner up with someone on a large deal who has no income ;) haha... If you can put 20-50% down, that might sway them to put the loan in their name though ;)

Cheers,

- Hakrjak
 

Edge

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- I do have plenty of cash in the bank. While I certainly wouldn't want to start buying property at 0% LTV (and don't have enough that I could buy multiple large buildings), I can make relatively large (20-40%) downpayments that -- in combination with strong business plans for the properties -- will hopefully help with traditional lending;

- My credit score is 810, so if there are any obstacles that great credit can overcome (and I'm not sure if there are or not these days), I have that on my side;

But I agree that this could potentially be a major issue, and would love any suggestions anyone else might have!
I think you need to immediately start leveraging you 810 credit score to establish business credit. If you buy 10 SFRs within the next 12 months, don't be suprised if at some point during that year the first digit of your credit score starts with a 6 instead of an 8. It will be temporary, but it will give you a short term kick in the gut feeling. The time to start working on business credit is now.

You've indicated above that you are willing to put 20-40% down. IMO, your plan should revolve around buying units 1-5 with 20% down and then refinancing into a blanket mortgage. Blanket mortgages are commercial loans that will remove them from your personal credit and put your score back up to the 800 range. If you are buying right, you can get a lot of your money back out during the refi into the blanket loan, rinse-and-repeat.

Since you've hopefully started working on your business credit and wrapping the units into blanket loans to enhance your track record, before you know it you might be able to buy directly through your business.
 

AroundTheWorld

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Edge has an excellent point. ++

Acquiring multiple mortgages in a short period of time drops your score dramatically. It will come up again, but perhaps never to the 800+ level again - - - especially if you are continuing to shop credit for the new deals. Doesn't matter if you are paying on time or not! (More on this in the probability of success plan)

Also, developing a solid relationship with a local banker is a huge help here. We've got a banker that will loan to us - - - without all those parameters.

Eventually you reach a threashold and are just not "lendable" anymore with one particular bank. You have to start going elsewhere. If your score has gone down (it will) then it makes it tough at a new bank.

Edge's idea seems like a valid one. (I've never used it).

At some point - - - I would think a 4,000,000 dollar commercial loan is better than 4 1,000,000 loans.... but that is speculation. We have 3M + in loans that show up on our credit report. I'm curious to hear from others that have more than this - - - and how it influences your score... Is one 4M loan better than several adding up to the same amount (on your score)?
 

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andviv

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Edge, rep++
JScott, what is your fiancee's credit score?
That may be another way to keep buying if your credit becomes too glutted with loans.
Now, the relationship stress part of this strategy is completely a whole different thing, but we are here to discuss business, not relationships, right? Just something else to keep in mind.

ATW, I don't have any experience in what you are asking, but I can only reason that your "score" will be better off by having less "recent" loans (so you don't lower your average account age), and also remember that more than three mortgages start negatively impacting your score. Yeah, it'd great if somebody with experience on this (Diane?) could comment on this.
 

AroundTheWorld

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That may be another way to keep buying if your credit becomes too glutted with loans.
Now, the relationship stress part of this strategy is completely a whole different thing, but we are here to discuss business, not relationships, right? Just something else to keep in mind.
Andres, this is a great strategy too ++ - - - assuming both parties are on board. Works w/ spouses and other biz. partners too.

We alternate our mortgages... Hubby takes out all the loans for a year, then I take them out the next year, etc.

edit: gotta spread the love some more first Andres.
 
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JScott

JScott

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I think you need to immediately start leveraging you 810 credit score to establish business credit. If you buy 10 SFRs within the next 12 months, don't be suprised if at some point during that year the first digit of your credit score starts with a 6 instead of an 8. It will be temporary, but it will give you a short term kick in the gut feeling. The time to start working on business credit is now.

You've indicated above that you are willing to put 20-40% down. IMO, your plan should revolve around buying units 1-5 with 20% down and then refinancing into a blanket mortgage. Blanket mortgages are commercial loans that will remove them from your personal credit and put your score back up to the 800 range. If you are buying right, you can get a lot of your money back out during the refi into the blanket loan, rinse-and-repeat.

Since you've hopefully started working on your business credit and wrapping the units into blanket loans to enhance your track record, before you know it you might be able to buy directly through your business.
Edge - Great thoughts...thanks! ++
 
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JScott

JScott

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Edge, rep++
JScott, what is your fiancee's credit score?
That may be another way to keep buying if your credit becomes too glutted with loans.
Now, the relationship stress part of this strategy is completely a whole different thing, but we are here to discuss business, not relationships, right? Just something else to keep in mind.
Yup, good thought, and it's something she and I have already discussed. Her score is around 800, and we purposefully put the mortgage on the house we just bought (personal residence) completely in my name so as to keep her debt-free for future borrowing.

Unfortunately, we both have the issue of no income at the moment, but I guess that will be the challenging ... I mean fun ... part... :)

Thanks!!! Rep++
 

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