Thread: Could I get a mortgage in the following scenario...

Bump.

Everything is still the same, only graduation was pushed back to this May because my school didn't offer enough summer classes for me last summer.

Anyone?

You have a lot of aspirations. You have the right attitude. You've read a lot too I see. However, there's no substitute for real world education; hands-on, get your hands in the sauce learning. The things books can't teach you: believe me, they're out there. Lessons to be learned that the authors NEVER tell you.

1) Your income and length of time on the job (no matter what it is), will be a determining factor if we give you the mortgage miss.
2) Your credit score of course too. (700's is good)
3) Your down payment (if any) also has a bearing

The fact that you want to rent out this property will also be a determination if we lend you the money.

Once we give you a "pre-approval" status (this means we're willing to give you the mortgage), it'll be good for 90 days. In that time, call a Realtor, give them a copy of this paperwork, and begin looking.

What we give you will determine where and what you'll buy. It's nice to want to buy a $350k let's say apartment or two fam. house, but we're only going to give you $__________. This amount may only be enough you see, to buy in a lower income neighborhood.

Like I said, you have the right attitude and if you're a happy go lucky person by nature, then don't bother reading what I'm about to draft.

A word of caution when becoming a landlord. All the stories you've read I'm sure painted a pretty picture of your living in a new utopia of renting out something you own to have positive income. Your attitude shows it. What all authors never tell you (for some asinine reason) is that most renters are broke or lie their way into your property because they know through experience housing laws are written to protect them. For example, if you get some joker in there that refuses to pay his rent, you'll waste the next six months of your life attempting to get them evicted. Yes, six to nine months. It matters not what your lease says; the laws favor non-paying renters. Hearings will be issued and the entire process takes many months due to back-logs in the courts because of what I just said.

Sec. 8 - These folks get a government subsidy to pay a PORTION of their rent. If you rent out a place to them, the rules you have in place do not apply. For another example: Your lease clearly states no more than two adults. You'll show up next month looking for your rent and there will be nine adults living in this two bedroom place with six kids: and they're all related to some extent. The government (you're welcome), will pay let's say 2/3 of the rent you're asking. Now, you either take what you get or don't rent to Sec. 8 recipients. Don't expect them to "pick up the slack" and pay the difference: They don't work, where are they going to get the money? And if they did get it, why would they give it to you? Just prepare yourself now if you're going to go down this road to hear a lot of "This is my place!" and go broke in the interim. The bank won't care: they want their money on the first and you are obligated to pay the bank back because you signed that note.

Okay. You're not going to go down that road. Fine. My best advice than is to hire a Realtor. They will locate something that suits your needs and based on what the bank is willing to give you. They will determine with some mathematical calculations what your rent should be, how long before you pay off the loan and other items. Next, get the same Realtor to locate tenants for you. Realtors have applications that need to be filled out by prospective tenants. Background checks (like Megan's Law) and employment checks and financial back ground checks. This will at least increase your chances of locating a descent tenant who has a little more than a grade-school education and isn't an ignorant fool who steals from hard-working people for a living and won't pay you the rent agreed because remember: it's "his place".

Get your degree. Get that job. Have at it for at least six months. Go to the bank. Apply for the loan.
Get the pre-approval paperwork to a Realtor. With their help, you and they should work together locating a place to rent out that meets your needs. If you don't feel after a month or so, you can locate the right place or haven't located the right place, then move on. Don't take the money.

Owning property is a huge responsibility. Now add in non-paying renters and equipment breakdowns, snow removal and litigious renters and you now have a whole other set of problems. Don't forget too that you'll be working for a living and it's going to take more than one property to have a descent positive income.


Good luck to you and remember what I said. Don't argue with the ignorant. You're fighting a losing battle and won't get dime one out of them. They may pay you the agreed upon rent for a few months to build a little trust but then look out.

CM

Thank you for your reply Chris, though to be honest, I was hoping for something a little more specific.

How would it affect my odds of getting a mortage if I told the bank up front that I planned to live in the house and rent out all the other rooms?

I agree with you that experience is the best and also the hardest teacher, and I've come to see its value. But nonetheless, I have indeed read many cautions in my books about bad tenants. Telling prospective tenants up front that you are going to check out their credit histories and criminal records should probably scare away the worst at the very start. Requiring them to give you info on their employment and rental history would be the next level. A little work up front investigating prospective tenants could save a lot of trouble later.

"... I was hoping for something a little more specific." -Okay, below. I know, I talk a lot. Onward....

"How would it affect my odds of getting a mortage if I told the bank up front that I planned to live in the house and rent out all the other rooms?" -Well, it would probably increase your odds of getting it because now, it would be "owner occ". Then again, remember.......FICO score, Down payment, work history, income level will affect (is that correct grammar?) the amount you'll be getting. There are plenty of programs (through the bank and the Feds) that will throw money at you if: You live in your building AND it's in what the Feds call a "Target Zone". I don't need to explain what these are, you know what they are. In a nutshell, it's Sec. 8 housing that you, the landlord, purchaser, will fix up and live in. In some parts of the country you'll be required to live in your building for up to two years. I'm sorry, most realistic people don't go into these neighborhoods even on a drunken bet.

I agree with you that experience is the best and also the hardest teacher, and I've come to see its value. -That's good. Read, learn, do.

"But nonetheless, I have indeed read many cautions in my books about bad tenants. Telling prospective tenants up front that you are going to check out their credit histories and criminal records should probably scare away the worst at the very start. Requiring them to give you info on their employment and rental history would be the next level. A little work up front investigating prospective tenants could save a lot of trouble later." -100% correct, but it's not foolproof. Let your Realtor do the work; it'll cost you nothing. Not a dime. The Realtor has all the paperwork at their office. Criminal background checks, state and Federal (Megan's Law included), Employment, Financial and HOUSING history are also part of the application packet. You're 100% correct: Most flee when they see or hear (from The Realtor now), that they're going to have to fill out all of this and you/the landlord has the final say. In my experience, that's what they do. I hear a lot of "Ohhhhh?! Really?!" When I explain the process. I go on to explain "That it's not like what it used to be sir/miss. You can't just walk up to the landlord and offer them a month's rent and move in. We have a five page application and a forty dollar fee. We send off all the paperwork to all the various agencies and the employment history takes the longest because most boss's don't care. When we get all the paperwork returned to us, we give the packet to the landlord and they have the full and final say as to whether or not they'll accept you as a tenant.". "Oooohhhh. Okay.". Yeah, and they never come into the office to start the process.

BUT.......you'll get some people from time to time who will lie. I spoke with a lanlord, just two weeks ago and her tenant lied on her application with regard to her income. Now, she doesn't pay the rent and she allegedly stole the landlord's tools out of the garage. See? This tenant knows, it's going to be nine months before her court hearing. And in that nine months, the poor landlord is short on her mortgage by $1200 a month, times nine months. That's $10,800 the landlord now is responsible for. Because of some jerkoff tenant. Then in that nine months, if the tenant doesn't show up, no, they don't issue a warrant, they set another hearing date. See, technically, they'll sign a lease with you. If they don't pay their rent, you must go through the courts; you can't just throw them out. They're not trespassing!

Do decrease your odds of dealing with these types, my suggestion is: Form and LLC. Get pre-approved. Get yourself a buyer's agent and get that pre-approval paperwork to them! Look together for places that suit you. They'll be on the MLS system for you, so if you're busy at school or work: fine, your Realtor will handle it, that's their job anyway.

If you really want to go forward and your lifestyle and day gig allow for it (time off for yourself) AND you get a good amount from the bank or the Feds or whomever, and you think you can handle it, THEN you sign on the dotted line. THEN hire the same Realtor to locate good tenants for you. AAAANNNND, have a month to month lease. THIS way, if they pull any crap, on the first of the next month (after them being late twice that is), you can call the local Sheriff, and have them thrown off your property because the lease expired and they are technically trespassing. Explain that to any prospective tenant: It's your property, you make the rules. Say "Listen tough guy, you're late more than a week in two consecutive months, your *** is out of here, that simple. Don't test me. I can and will do it. Re-read your friggin lease if you don't believe me." That's all. You don't have to be mean, I didn't say to be. Just be direct and look them right in the eye. You'd be surprised how effective it is. Offer them a $25 discount if they pay you early. Some tenants have this ability. Most WILL be working you'll find on the applications. Everyone loves a $25 discount, not all will qualify, but....you never know.

Look, I'm not a lawyer, I'm not advocating you break any laws (and there are many). Hook up with a good RE attorney in your state. Most will sit down with you for a flat fee of $100. You'll have a half an hour to ask all the questions you like. Pay them cash: Cash is king.


CM

Christopher,

Thank you for another well-reasoned response!

I'm not interested in moving into a ghetto neighborhood, though I've heard of landlords becoming wealthy off renting to Section 8 people. Know anything about that? What's the secret to their success?

Let me level with you on something important: Even though most people wouldn't guess it by looking at me, I'm a free spirit--or at least I badly want to be one. The older I've become, the more I've realized how soul-destroying the whole 9-5 office life is. I also see that while marriage and kids can be wonderful in their own ways, they can also be imprisoning in others. Being materialistic and pegging your worth as a person to how superior your possessions are to your peers is the worst, and is only a self-defeating cycle that leads nowhere. I want to be my own boss, make my own hours, and spend large amounts of time traveling (the idea of driving a small RV all the way down to the tip of Chile, and of climbing Mt. Everest have seriously come to mind). This may be naive, but I see rental real estate as a gateway to that lifestyle.

As I said in my first post, I want to get a job so I can get a mortgage for my first house. But the more and more I think about it, the job is just a means to and end in that it will enable me to start up the rental business. Once I have four or five houses, I'd quit the damn job and start working for myself.

My question is, how do I go from zero houses to four or five? Would it be easier (in terms of taxes and getting mortgages) for me to start some kind of rental business instead of just owning these houses directly as a private individual?

Thanks again.