I AM LOSING HOPE. Please read. PLEASE HELP!

Financing, Hard Money Lenders, Private Money
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Hello,

I need to find out if there is hope for me and my spouse to purchase our first investment property. We have a combined income of about $60,000, $1,200 in savings, and a home we purchased for ourselves through a 1st time home buyers program. It was purchased in February of this year, so we have no equity. Our mortgage payment is about $1480 for a $230,000 @ about 4.5%. We have about $8300 in cosumer debt. Even if we pay that off, we still have the credit issue (560-650) and no assets, we wanted to do rei in order to aquire some assets (rentals) and cash (flips).

This is our plan: Purchase our first rental property, become a section 8 landloard for the right tenants, use that property as leverage to buy a rehab with Hard Money, sell and get at LEAST 15-20k in cash. and keep buying a good balance of flips and rentals. However, we are new to the art of rei and are having trouble finding lenders who are willing to take a risk on us, since we have never done a deal and don’t have enough in savings, and have no equity yet. Banks won’t qualify us either based on our credit. We are blessed to have our own home. I am frustrated because I can’t just wink $15-30K in our bank account (that’s the purpase of doing real estate, to build our net worth one deal at a time)and I can’t change my credit history within the next 5-7 years. Although, I have paid all outstanding bad debts. And have accumilated some positve accounts. Please help. We just want a chance! Urgghhhhhh!!! :frowning: :frowning:

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Also if you are a lender or broker, tell me if you work with people like me and if so what interest rate or upfront cash contribution I can expect, based on the info I’ve given so far.

Thanks

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Hi there…it might help for you to start out wholesaling properties, which you can do with only a little or even no money and credit is really not a factor. Start building your buyers list–there are plenty of threads and articles here that can help with finding folks who have money or access to it and can close quickly. Then start putting places under contract. Depending on what deals you make and how aggressive you are, you can build up the $15k-$30k or possibly even more with just a few transactions. I know of REI’s that have done more than that in just one deal. Then you’ll find that you have more options and can proceed with your plan if you feel at that time it is still the way to go. Basically you are planning a trip and have run into a few road blocks. You can still make the journey, only instead of jumping directly on the expressway (or highway depending on where you live), you’ll take a few side streets until you can smoothly resume your original route. Might take a bit longer, but you’ll arrive safely and probably more refreshed.

Hope this helps. Best of luck to you from a fellow newbie ;D…d

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Thanks deborahwells,

Could you explain just a little about wholeselling. How does it work? What would my role be in this process? I haven’t looked into this side of rei.

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You’re welcome…when you wholesale you find a property, put it under a purchase contract, then sell your purchase rights to another investor for a fee. You’ll want to be sure that the purchase price plus your fee leaves enough room for your buyer to find the deal worthwhile. By way of very loose example: the house needs $5k worth of work and will be worth $100k after repairs and there are no liens, you get it under contract for $55,000, then you assign it to your buyer for $5,000. So you have $55,0000 Purchase Price, $5,000 Assignment, $5,000 in repairs–that’s $65,000 that the investor is paying. That leaves $35,000 in the property for the investor and depending on his/her preferences, they might bite. Of course in real life there are many other considerations unique to each deal.

Even though you yourself won’t be acquiring and rehabbing the properties just yet, it is very important to learn all about finding, estimating, rehabbing–everything about the acquisition, rehabbing and holding processes–so that you can confidently and competently find and make good deals. It is also important to really build and maintain a buyers list.

These are the clif notes. You would do well to scour these boards, especially the “beginners, carlton sheets” and “bird dogs, wholesaling” forums. Also there are some great articles and books listed in the “investor information” area. Also start networking with other investors in your area and if you find someone you are comfortable with, talk to them about becoming your mentor. Offer something in return (a little grunt work like searching public records for them, clipping fsbos, etc. but make sure it is fair labor),and they will be a great resource. I finally convinced on of my REI family friends (he’s been doing this since the 80s) to take me on as a working apprentice instead of just their happenstance birddog. Working directly under someone, going on walk-throughs, listening in on calls, sitting in on negotiations and closings, getting personal introductions to other “money people”–has brought to life everything that I have read on these boards and in books. I am too excited!

I hope this long-winded speech helps you, and I know that the other resources available here and on similar sites will definitely assist you.

Have a wonderful weekend!..d

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The first step is probably to get your credit in order. Your credit can improve quite a bit in a year or two if you keep things current and pay down your debts. What did you spend all that money on? Making money in REI also requires good money skills and if there’s no good reason for the bad credit, just felt like charging things up, that might not be a good reason to get into the business. Also I see lots of foreclosures where there was 100% financing, but because of a couple of bad tenants and lack of savings or management skills, the property fell into foreclosure and the budding investor was out of the game.

Currently the market is not for get rich quick people, while prices are higher than they were a couple of years ago, they’re actually a bit lower than they were last year due to higher interest rates. You would have to expect that you need to hold the property for at least 3-5 years before you can get a good return.

One thing all those real estate shows never really mention is that it costs about 10% just to get into and out of a property just due to various fees like Realtor commissions, closing costs, title insurance, stamp taxes, attorney fees, registry fees, holding costs, moving etc. Means you take a 5% loss if the property only goes up 5% and you only hold it for a year.

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Thanks again deborahwells

I will go and find my local rei club, I have been hesitant to do that because I thought that everyone there was probably a seasoned investor and would not take our ambitions seriously. I thought I should join after getting some type of knowledege and experience under my belt. But if I join beforehand and at least meet some real life people in the area, maybe my hubby and I won’t make any really costly mistakes on our first investment property. And will start off on the right foot. Thanks for taking time to help a fellow newbie.

How many properties have you done so far. And what method have you used? Buy and rent, wholesale properties, quick flips, etc.?

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Thanks henryinma,

I appreciate your advice. I am currently working on my credit as we speak. First, I paid any outstanding accounts off in full in 2004 including all chargeoffs and collections. I even researched, as much as I could, anything that I knew of that had not made it to collections yet like doctors bills, library fees, and tuition fees from college that financial aid had not covered. I paid all that off. It took my husband and me about 1 1/2 years to do it, we had no furniture or a car, but we did did it !!! ;D

Then we opened three low limit credit cards one for him and two for me. Limits up to $300 on each card. That’s the maximum credit limit we seem to be approved for, but it’s ok. Hopefully our current credit card companies will increase our limits in time. We also purposely opened two installment loans and paid them off in order to establsih a credit history for him and re-establish one for me. He hates using credit but I convinced him of how important it was, especially in REI. So only about $800 of our debt is in credit card debt, that we pay off each month. The $7500 came from a loan that we received after purchasing our fixer upper home in February of this year. We got a loan and did everything we could to our home with that money. On the inside, we gutted the kitchen and bathrooms and totally remodled them and other parts of our home ourselves with the exception of the bath tubs, those stayed. We installed wew ceramic tile, toilets, sinks, bathroom and kitchen cabinets, appliances, carpet, paint, a new entry door, etc. All we need now is landscaping, a new deck, a new fence around our house, and to either replace or paint siding and get new windows and patio doors.

So I like to believe that I have learned from my history of poor credit that occured mostly when I went off to scool and had no job. I had debts beforehand that I didn’t pay off before going to school (thinking that I would easily get a new job while in school to pay it off-NOT TRUE!)

So anyway, although I am proud of where I came from, as far as my credit history, the fact is that it doesn’t change my score all that much. I still get denied for credit all the time because of the history even though the accounts are from 97-2003 and have ALL been paid. So what can I do?

Is there no hope for me until then? Is there no way to work around it? Is there NO lender eho will take a chance on my first REI property? Is there no one who got started in my boat with little money saved, no assets to pull from and a poor credit rating. I buy so many books that say it can be done, but reality is teaching me that it can’t. You have to have money to make money! You have to have credit to get credit. You have to have real estate properties and experience to get real properties and experience. You have to have wealth to build wealth!Where do the beginners fit in?

I am not trying to get rich overnight, our goals are modest in our opinion. Get about 2 flips per year with a minimum of $15-20k profit on each to build some cash for future investments like rei and retirement accounts, stocks and mutual funds, a college fund, etc. And to also get atleast 2 rentals per year to hold and rent over time for long term wealth. And sell in retirement years.

I know that we live in Washington, DC were the market is really saturated and competitive but we have to find a niche and do it. I can’t help where I live. And from what I hear on this board, long distance landloarding or investing in better markets in other states, especially for a beginner like me, will be a BIG mistake!

There has to be a way to do that first property!

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The only thing that I can think of for cash, is to keep working on my home and next february after having it for one year, get it appraised again and hope it appraises for at atleast $20-30K more than we purchased it for because of appreciation and improvements and get a working Home Equity Line of Credit or HELOC that we can use over and over until we get our savings account built.

What do you seasoned investors think about the HELOC idea?

What do you think of our strategy in today’s market? Is it smart or not to “Get about 2 flips per year with a minimum of $15-20k profit on each to build some cash for future investments like rei and retirement accounts, stocks and mutual funds, a college fund, etc. And to also get atleast 2 rentals per year to hold and rent over time for long term wealth. And sell in retirement years.” ?

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My suggestions would err on the side of conservative. As for HELOC’s they can be a great tool if used wisely, but you do not want to over extend yourself. and your primary home. Remember that you thought it would be easy to get a job while in school? Well what would you do now if the unthinkable happened and you or your spouse were laid off of work? Do you have the reserves to cover your mortgage?

Now translate that into an investment which takes more time or $ to fix than you anticipate. Will you have enough in reserve to pay that mortgage too while you are fixing and selling that? You always want to protect yourself and prepare for the unexpected.

As for fixing your credit, try to find companies on your report that may be out of business. Then write each of the 3 bureaus individually and ask them to verify those accounts. If the company no longer exists, they cannot verify and by law those derogatories will need to be removed.

All those past creditors still in business? Try this: Call and ask them to remove them from your report. They will most likely respond it is against the law to do so. This is true, but you need to ask several times try 3 for each one. Explain the reason that those things happened back then and that you are trying to turn things around. If you play on their sensibilities, you might be surprised. Like I said, try a few times. Once you are certain they will not remove it from your credit, ask if at least they will remove it from their records.

Now after they have done that, write a letter to the bureaus and ask to verify. They creditor will no longer have the record because they removed it from their system, so they can no longer verify it. By law the bureaus have to remove them.

A lot of work? Yes and No. It’s a few phone calls and letters. Worth it? Absolutely.

Another credit tip. Regardless of your credit limit, be it $300 or $3000, you only want to use no more that 30% of the limit at any given time. This will affect your scores as well. So with a $300 limit, your balance should never exceed $100. This will show that you can effectively manage your credit. When the bureaus rate your FICO, this is a factor that comes into play. It could potentially result in the creditor allowing for increasing your limits more quickly. Simply call and tell them that you are going to make a larger purchase.

Gotta run, hope these things help with the credit and give you some thoughts about your buy, fix, flip approach. In essence, have money for the unknowns…

Good luck.

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Well some additional advice would be to follow the advice listed above. It sounds like your credit scores are low because you have a low limit on your credit card. You should try calling those credit card companies and having the limit raised. See if you can get $5-10k or more. Just make sure you don’t use that extra credit. Also bad items will fall off your credit report after 7 years. The only reason something from 1997 would still be on your report is because you decided to make a payment on it a year or two ago and all of a sudden something that was about to fall off your report now has activity and it’s 7 years from the date of the last activity. Maybe that’s why your credit is low. If most things have been current for the last two years, you should be able to get a loan. You really do need that 3-6 months worth of assets before you can do a loan without paying through the roof for the interest rate.

There is hope, just stop eating out as much, cut back on vacations, scale back on your plans for your house and build your assets so you have a nice cushion you can work with. I did fix up an investment property a couple of years ago and it always cost more than I thought it would even knowing that it was going to cost more than I though it would. I had enough cash that it didn’t matter that I went over by 15-20%, I was able to ride it out. The foreclosures I see on the market are due to one reason or another. Like plumbing goes bad and it’s several thousand to fix properly. Owner does nothing, tenants get mad and stop paying the rent, ower falls behind on the mortgage and boom, it’s back on the market in less than a year. With no assets, it can happen easily.

Also in the market around here, annual appreciation of 10-20k is unrealistic and the high taxes on a flip in less than a year really cuts into your profits not to mention all those closing fees that need to be paid on both a purchase and a sale. You probably know more about the conditions in DC.

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There is a website that you may want to look at http://www.fair-debt-collection.com/index.html. I don’t know what state you are in but there is a non-profit organizaiton that gives free real estate advice lanhs. Here is their website. They are a legitimate company and may be able to help. http://www.lanhs.org/ or http://www.naca.com/index_flash.pbl. Hope the information provided helps.

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I agree with henryinma. The first thing is the credit score. Add up the balances on all your credit cards. Add up all the limits on those cards. Divide the total balances into the total limits. That number has to be less than 33%. If you do that and have no lates in the last year, your score will be 700 or at least in striking distance. That will put you in the game.