Like most people in real estate investing, we aren't made of money. However, we have been extremely fortunate along the way before we got into the real estate market. We have owned a profitable consulting business for 10 years. We have played by the rules. Paid our bills on time. Maintained a very low debt to income ratio (almost nil). Our vehicles are over 2 years old and paid for. And we each maintain a 700+ credit score.
Before the housing meltdown, we purchased a really nice rehab property that we decided to keep for our personal home (and its still a great deal even after housing prices have tanked). However, the words "trashed and destroyed" doesn't quite cut it with describing this house. The previous owners even took the ceiling fan that was in the entry way...which has a 16' ceiling. The ladder needed to reach that high costs more than the ceiling fan is worth!
So conventional financing wasn't an option. Nor was any other kind of financing except hard money. We emptied most of our savings account to purchase the home and we took out a very small hard money loan to cover repairs. After all repairs were made, we went to get a loan on the house to pay off the hard money loan.
Well, we have run into a sticking point in the real estate business because of our income and the fact that our W-2s come from our corporation. No bank would touch us. No lender would talk to us...well, they talked but said they couldn't help. If we had a traditional job making a lot less money for some other company, we would qualify for a loan with no problem. Even our bank that we have all of our business and personal accounts with doesn't want to touch us. Not even for a HELOC. How is that for customer service??
For those of you who don't know how hard money works, repayment is usually a balloon payment with interest. The loan is paid off when you either sell the house in a flip situation, or when you refinance. Well, we have been working on getting the refinance to go through since October 2008. As of the time of this writing, it is mid-May 2009. Our hard money loan comes due in mid-June. Nothing quite like having an executioner standing behind you with a smile on his face. Yes, it is very stressful to say the least.
Fortunately, we have found someone through our local real estate investment club that knows who we are and knows we are a very good financial risk. He is willing to finance this home for us so we can record a loan and get some "traditional seasoning" on a mortgage. The "signing party" will be the standard mortgage and promissory note - checks transferred. Mortgage filed in the city-county building, then it is off to lunch. Then more searching for the next housing deal....But, with some big lessons learned...
What we recommend to other new investors...
- Keep a real job. This has really hurt our progress. Lenders are really looking for 3rd party income, even though you could be fired at a moment's notice.
- Go to your local REI club. We have learned a great deal from those who have gone before us (we would really like to thank Randy and 'Charlie' France...Google them if you don't know who they are. They are the best people ever and they live just down the street from us. Some people say Charlie is a 'real estate guru', but how many gurus do you know that fix chocolate chip cookies for you when she knows you are stopping by?)
- Find a mortgage broker who is NOT an investor. A person who has a part time job as a mortgage broker isn't always in the trenches and up to date on the latest happenings in the market. Use a professional, full time mortgage person. You will be much happier with their results.
- Never, ever quit. It doesn't matter if it is investing in real estate or whatever you choose. Yes, it gets frustrating at times, unnerving sometimes, seemingly impossible even. But if we were deterred by these things, we wouldn't have survived more than a year with our own company (let alone 10). We thrive on challenges, but it seems like we have more than our fair share. But the more challenges we face and overcome, the luckier we seem to get.
Such is life. And we dare to be different.
