Getting back into the story… we had started forming our systems, like Ken had wanted. So I decided we were ready to buy a house. Really, I had wanted to buy it 5 years ago, but until Ken creates an AI that can build us a time machine, I am limited in my options.
We reached back out to our Rent to Retirement Investment Strategist, Adam, and told him we wanted to look at properties with a down payment of approximately $35k. We arrived at this number because it was an amount that was not scary to us. Ken had earned a few bonuses that had gone into an account that I added a small amount to weekly. No creative financing necessary this time, but I already have ideas for our next two properties.
We are still working our way through the R2R Academy, but one of the things it says is that experience is the best teacher. You are encouraged to start your investment journey while still going over the course materials.
Adam sent over two properties in Canton, Ohio. Their specs were pretty similar and according to our Ohio expert friends, they were in decent areas of Canton. We were still a bit hesitant to buy a property sight unseen. Adam offered to put us in touch with the teams in the area. That’s how we came to meet Steve, an R2R provider (legitimately the person who provides inventory) in the Akron/Canton area. Talking to Steve made us feel even better about the deal, but we still thought one of us should go see the house we were considering. I booked a trip to Canton on February 12. I will be in town for approximately 18 hours, which should be interesting. Steve will show us his properties and introduce us to the property management team.
We decided to get a property under contract before the trip. If something came up, we still had the inspection contingency to let us back out and if everything seems golden, we’d start making income on the property that much sooner. We told Adam which property we wanted and Adam told us what information he needed.
It was at this moment that Adam and we discovered we had missed a crucial step in the buying process, PRE-APPROVAL. Adam had mentioned R2Rs recommended lenders and I had asked if we needed to find a lender and somewhere along the line our wires got crossed. This was on Thursday. Adam had held the property we wanted through Friday afternoon. I immediately contacted his recommended lender and made an appointment for Friday morning.
I filled out the pre-approval application as quickly as I could and sent over the required documents. I should note, pre-approval is not a given for us. I have a fairly large student loan that should be going away any day now (I’ve made the requisite 120 payments and applied for forgiveness but Mohela is quibbling over some of the numbers while saying I should eventually be good… they can’t tell me when eventually will be though… I could rant about this for a while, but I’ve filed my complaints and since we’re almost caught up, I’ll try to wrap up quickly).
An important equation when you’re attempting to get a mortgage loan is your debt to income ratio. This means the bank looks at your total debts (any existing loans including those pesky student ones) and adds the new mortgage payments. It then divides that number by your current income and multiples the answer by 100. Most banks won’t give a loan to anything higher than 36% all though a few will go closer to 40%. That said, my lingering student loan could have been a big hurdle.
Luckily, when you’re discussing rental properties, most banks will consider the expected income from the property as part of your income in the equation. Since we expect the property to cash flow, we expect the monthly income from rent to be more than our monthly loan payments (another topic for another day).
We got the pre-approval letter at 4:45 on Friday afternoon. I immediately sent the letter over to Adam along with all other necessary information. He got back to us later that evening and said the property was still available and we could expect a contract on Monday.
So that’s where we are currently at in our investing journey. We’ve opened up an LLC and are about to go into escrow on our first rental property. A very productive two weeks. I’m going to bed now.
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