I currently own a duplex with a cousin of mine. He lives on one side with his wife and I live on the other with my wife. My wife and I are interested in purchasing another duplex to move into on our own, so we can rent our current side out, and the other side in our future duplex.
The problem we just ran into is that when we went to the bank to get pre-approved, they told us that since the price range of the houses were are looking to move into is lower than the house we are currently in, the underwriter will not believe that we are going to live in the new house. They will consider it an investment property and will want 20% down, etc.
Our exciting plan was to make this first move and then make another one in a year or two and continue this until we have enough money to just buy buy them as investments and stop moving. This is a tip that a few books I have read have suggested. Unfortunately, so far it looks like it’s harder to do than it sounds.
Our credit is great and we are able to save up money pretty quickly with little debt. By being able to rent the other side of our hopefully-future-duplex, we would be able to save up money quite quickly and be planning our next step.
Has anybody encountered this before? Is there any hope for this plan to work besides actually saving up the 20% down??
Did you marry the first girl that would date you? No you tried out a few girls before you found the one you wanted to be with. Lenders are no different. You went to one bank. Your response should have been to say NEXT!
What I would do is instead of using a bank I use a loan broker that deals with investment property. Tell him what you want to do and he will do all that shopping around for you.
Search in yellow pages online or any other search for "Mortgage Loan Brokers" or "Real Estate Loan Brokers" or "Home Loan Brokers" or "Residential Loan Brokers"!
They advertise just like any other loan brokers because they do regular loans also. The difference is that when you ask them about some real estate investment issues they have done it before and know who to go to. They will be the ones that advertise at your local real estate investor’s club.
What I would do is attend the local real estate investor’s club and ask the people there who they use. The club should also have a list of preferred suppliers. These suppliers may have paid to be on the list but they are reaching out for investor business.
You may have to write a formal “Letter of Intent” explaining your home budget, and how you save money, are thrifty, live below your means, paying off student debt, etc., all that other good stuff your loan officer can take to the loan committee.
Tell them everything about your frugal ways, branching out from family duplex to your own place, etc. Just don’t dwell on the fact that you will move on again in a year or two.
Try your small local banks by talking to their bank officers, too. You should be able to make your plan work.
Being a SERIAL HOME BUYER-MOVER is a great way to garner more properties. As long as you keep it affordable. Keep it real.
I followed this exact strategy for my first few rental properties.
I bought my first house as a primary residence for $85K in 1979. then converted it to a rental when I got a job transfer in 1980. I bougnt my second primary residence for $60K in 1982 and converted it to a rental when I bought my third primary residence in 1984 for $38K.
Each time I traded down, I bought a replacement home priced such that the rent from the previous home would cover my new mortgage payment and give me a little cash flow. In 1986, I quit buying new homes with owner financing and just started buying with investor loans.
The lenders were happy because each time I downsized, the rent I collected on the previous property helped lower my debt to income rato when I was ready to buy the next property.