Section 8 Borrowing (by alex [CA]) Jul 31, 2022 10:25 PM|
Section 8 Borrowing (by plenty [MO]) Jul 31, 2022 10:35 PM
Section 8 Borrowing (by alex [CA]) Jul 31, 2022 10:42 PM
Section 8 Borrowing (by Robert J [CA]) Jul 31, 2022 10:52 PM
Section 8 Borrowing (by Sisco [MO]) Aug 1, 2022 7:03 AM
Section 8 Borrowing (by Roy [AL]) Aug 1, 2022 7:58 AM
Section 8 Borrowing (by S i d [MO]) Aug 1, 2022 9:11 AM
Section 8 Borrowing (by MMIT [VA]) Aug 1, 2022 9:52 AM
Section 8 Borrowing (by Oregon Woodsmoke [ID]) Aug 1, 2022 10:01 AM
Section 8 Borrowing (by Vee [OH]) Aug 1, 2022 11:01 AM
Section 8 Borrowing (by Alex [CA]) Aug 1, 2022 2:23 PM
Section 8 Borrowing (by Pmh [TX]) Aug 1, 2022 4:56 PM
Section 8 Borrowing (by MikeA [TX]) Aug 1, 2022 5:46 PM
Section 8 Borrowing (by Ray-N-Pa [PA]) Aug 1, 2022 7:08 PM
Section 8 Borrowing (by Alex [CA]) Aug 1, 2022 9:41 PM
Section 8 Borrowing (by Robin [WI]) Aug 3, 2022 4:14 PM
Section 8 Borrowing (by Tarheel T [NC]) Aug 4, 2022 7:08 AM
Section 8 Borrowing (by alex [CA]) Aug 5, 2022 2:08 PM
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Section 8 Borrowing (by alex [CA]) Posted on: Jul 31, 2022 10:25 PM
Hi, I'm just getting started in the real estate space and I've been drawn more into being a landlord for Section 8. I have a good understanding how it all works but my dilemma is securing lending.
I've been looking at more affordable property options at around $40,000-$60,000 all in (including rehab, tax, and fees) but I'm fearful that I won't be able to qualify for a loan. The majority of lenders will ask for the last 2 years of personal tax returns but I've been unemployed since the pandemic up until April of this year. I'm projected to make about $40k this year, have a good credit score +750 (Equifax) and I have $10,000 cash in my savings.
I understand there are different loan products and if manage to secure something that will make sense, will I be capped off on my borrowing power across all lenders or will I be able to scale my business and qualify for another loan right away.
*Worthy side note mention, I've explored looking into some "Section 8 Guru" programs because they all seem to promote, "anyone who is anybody can do this" with their stream-lined process but I'm not too sure if it's the right fit for everyone given their circumstances like myself. I'm I missing something? I don't have many people I can go to for advice and any help would be much appreciated. Thank you --172.88.xxx.xxx
Section 8 Borrowing (by plenty [MO]) Posted on: Jul 31, 2022 10:35 PM
Keep learning and reading and soon you will have the two years of papers for the loan officers. Read here every day. Many online and free options, the library has good books too. You'll soon find the right mentor be prepared to use the information from the training. --172.56.xx.xxx
Section 8 Borrowing (by alex [CA]) Posted on: Jul 31, 2022 10:42 PM
Thank you for the input plenty --172.88.xxx.xxx
Section 8 Borrowing (by Robert J [CA]) Posted on: Jul 31, 2022 10:52 PM
Your City in California makes tons of money in commission by passing the monthly section 8 funds paying your rent. They also most always side with a Section 8 tenant and not the landlord.
Unless you have bucks of money and can afford a layer while not receiving the rent, I wouldn't have too many section 8 tenants while you learn the ropes. --47.156.xx.xx
Section 8 Borrowing (by Sisco [MO]) Posted on: Aug 1, 2022 7:03 AM
Alex,in addition to the advice already given about low cost learning of this forum, the Mr LL bootcamp will accelerate your learning.
I think that you need a side hustle or two to build up your savings and earnings before you borrow any money.
At your current income, you won’t be able to reach into your pocket to buy anything for your business. Coupled with buying an old cheap house (read differed maintenance) and section 8 tenants (destructive), and section 8 ever changing rules (cut off the money) you will be walking a tightrope with no safety net.
Section 8 Borrowing (by Roy [AL]) Posted on: Aug 1, 2022 7:58 AM
You do not need or want Section 8 as your first tenants as a rookie LL. That would be the equivalent of throwing yourself to the wolves,...especially in CA.
It is not easy (or wise) to borrow money from a bank when starting out in this business. When I started out, I had no choice but to use a $75K HELOC to fund my first purchases and rehabs with. --71.207.xxx.x
Section 8 Borrowing (by S i d [MO]) Posted on: Aug 1, 2022 9:11 AM
Hi Alex, welcome to the forum. Be sure to stick around and learn, even though my guess is most of us are going to torpedo your idea. You'll see why soon. But we'll also try to give some pointers on what you can do instead that will help achieve your goals.
First, we don't know what your goals are. Do you? Share them here. Do not neglect this critically important step. Need to be more specific than, "Make lotsa monies with rentals."
A few things:
1) Most lenders won't touch a loan for anyone for any reason, if it's below a certain threshold. The time and effort isn't worth the paycheck, because often loan fees are percentages. Once you're well established and have a track record of several years and a half dozen properties, they'll probably do whatever kinds of deals you want that pencil out on paper. It used to be $55,000 was about the minimum cut off, but that was years ago and prices have gone up. My guess is we're getting close to $100,000.
2) El cheapo properties like the ones you're interested in are usually handled with portfolio loans that the banks keep in house. They will be on commercial terms: minimum 20% down, maximum 20 year amortization, somewhat higher interest rate, and they'll want to see cash reserves for all expenses of 3-6 months.
3) "Projected income" doesn't mean squat unless you have a relationship with the bank and/or a long track record. This is similar to when tenants apply for our units and say, "I'm going to get a job making $X." Nope. I need to see that you HAVE A JOB making $X and have had it for at least 90 days. Too many "projections" don't work out.
4) Section 8 means inviting Uncle Sam into your business. When you take his money, you play by his rules. Sec 8 makes you sign a lease in addition to your lease, and if the two conflict in any way, their lease wins automatically.
5) Section 8 will require an inspection once someone wants to live in your property. This can take 2-4 weeks after contacting them to set up an appointment. They have many rules that seem odd or nitpicky. For example, if there's a cracked electric outlet cover, they will fail the entire property, then you have to make the repair and reschedule the appointment. They will not allow you to make on the spot repairs, so add another 2-4 weeks of waiting for them to reschedule. Basically, waiting for Section 8 means you guarantee yourself 1-2 months of vacancy for them to shuffle their papers once you've approved a tenant. I prefer market rate tenants who are ready to rent today, not 1-2 months from today. Vacancy is EXPENSIVE! Btw, if the Sec 8 tenant backs out on you last minute, tough luck. They don't care. Start over from Day 1 with the next inspection.
6) Although rare, Sec 8 has been known to cut off payments if a tenant complains about something at the house. Also, during the last recession, Sec 8 forced land lords in some cities to take a 10% "Haircut" on their rents. Also, any time there is a budget shutdown of the federal Govt, your payment will be delayed and you will not receive any late fees.
Here's what I suggest as viable alternatives:
1) Only rent to market tenants, no subsidies of any kind. Too many rules to follow to make it worth the risk.
2) Find a local investor with whom you already have or can quickly gain a rapport. Show them your plans on paper for buying, renovating, and renting the property to make a profit. Ask if they would like to buy into this opportunity with you. Their name will be one the deed, as will yours.
3) If 2 doesn't work out, find a property where you can lease it yourself and the land lord allows sub-leasing to another tenant that you find. You use your good credit and diligence to negotiate a lower price in exchange for zero hassles, and then you rent it out to someone else for a higher rate and keep the spread as your profit. This may be hard at first, but if you offer up some of your $10,000 nest egg as additional security that may be enough to convince the owner to take a chance on you. Go above and beyond the call of duty to communicate clearly, quickly, and completely. This works well with folks who only have 1 or 2 units, maybe an inherited piece of property that they don't really know what to do with.
Method 2 or 3 will allow you to build a track record as a successful investor. Within 12-24 months, you can walk into a bank and say, "Look at how well I've done with these 1-3 units...what can you do for me?" They will be much more receptive to see someone with successful experiences vs. projections.
Section 8 Borrowing (by MMIT [VA]) Posted on: Aug 1, 2022 9:52 AM
Start attending your local REI group on a regular basis.
Talk to the REI members to learn how they got started.
Figure out who is successful in the group and offer to work part time for them - to learn what and how they run their business. The quiet person sitting in the corner of the room might be one of the most successful landlords in the meeting.
Put yourself on a tight budget to save up for a down payment and an emergency fund to cover repair costs when tenants destroy the rental. Get a second job to build up your savings before you buy your first property.
Remember, you still have to make loan payments even if the rental is empty. Have a large emergency fund.
Use the MrLandlord resources - this forum, the boot camp, and the convention.
Section 8 is only for experienced landlords.
I don’t know anyone who is successful because they attended a guru course - except for the person who runs the course.
Section 8 Borrowing (by Oregon Woodsmoke [ID]) Posted on: Aug 1, 2022 10:01 AM
I suppose $40,000 isn't too much to risk. If you lose it all, you won't be ruined for life, and everyone starts somewhere.
Just work your budget so that you know you can make the mortgage payments if the rent is not coming in on schedule.
Reading everything on this website is a good place to start and it is free education. Not all the advice is good, but you should be able to sort it out after you get a little more knowledge.
Also, make sure you know and understand all the fair housing laws, both federal and local, --76.178.xxx.xxx
Section 8 Borrowing (by Vee [OH]) Posted on: Aug 1, 2022 11:01 AM
Based on my 15 plus years with Sec8 payments stop for many reasons, including something that jammed the drain which only the tenant has control over - I have seen t-shirts, winter socks, broken glass bottle, some toys that float back into the waste line - you never recover the lost rent. So knowing this be sure your margin is between 25-40 percent, if you rely on more you will sink quickly. As others have said Sec8 is not a place for a beginner, much like flying a passenger jet, you start in a 3 or 4 seat version and go into the larger planes once you can land safely for a year or so. --76.190.xxx.xxx
Section 8 Borrowing (by Alex [CA]) Posted on: Aug 1, 2022 2:23 PM
Thank you all for contributing to my inquiry, I appreciate your wisdom! --194.110.xxx.xxx
Section 8 Borrowing (by Pmh [TX]) Posted on: Aug 1, 2022 4:56 PM
$10k savings is way not enough cash back up. perhaps you can use cards to pay. Or perhaps borrow against a 401k. that is what I did to buy 5 acres of land for $50k & five years later sold for $350k and I used proceeds to put 20% down on each of my first rental houses. Do NOT get excited about the re get rich seminars. --166.205.xxx.xx
Section 8 Borrowing (by MikeA [TX]) Posted on: Aug 1, 2022 5:46 PM
No way would I start with S8. Start simple.
You need to invest in learning first. You can do this a few different ways:
Buy one, make mistakes that cost you money (in some cases large quantities), learn not to do that again. Once you make enough mistakes and loose enough money you will be an expert.
Learn from others by reading lots of books and following along with this forum. Effective and low cost but it takes a long time to gain enough info to be effective.
Go to something like the Bootcamp offered by Jeffrey on this site. Very effective, a little more costly (but not nearly as costly as learning by making mistakes) but very thorough, quick, and lots of expert support on the back end to almost guarantee success.
Find a local investor that will take you under his wing. The problem here is how do you know they are good and most good ones won't spend the kind of time you are going to need just starting out.
I would strongly recommend the Bootcamp if you are wanting to jump in within the next year. If not, start reading books, there's some good ones for sale on this site. --209.205.xxx.xx
Section 8 Borrowing (by Ray-N-Pa [PA]) Posted on: Aug 1, 2022 7:08 PM
Have you approached the seller to see if they will finance you?
Section 8 Borrowing (by Alex [CA]) Posted on: Aug 1, 2022 9:41 PM
I have not. Probably worthy of trying out. Thanks for the tip --194.110.xxx.xxx
Section 8 Borrowing (by Robin [WI]) Posted on: Aug 3, 2022 4:14 PM
Properties all-in for $40-$60K in CALIFORNIA?? Have you looked at the crime maps?
Based on what I hear from other CA landlords, I'd start my investing career by moving to a different state... --172.58.xxx.xxx
Section 8 Borrowing (by Tarheel T [NC]) Posted on: Aug 4, 2022 7:08 AM
Sid, my local Sec 8 inspector does allow repairs on the spot. Also quickly scheduled inspections…While i was writing this comment my inspector texted me to ask if i was ready to inspect a unit TODAY that i had only completed the RAFTA for yesterday afternoon! If it passes i will meet tenant to sign the lease today!
Section 8 Borrowing (by alex [CA]) Posted on: Aug 5, 2022 2:08 PM
I forgot to mention i'm looking at out of state properties. I can't afford California haha
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