Rental Property #5 Update (December 28, 2013)

by FI Fighter on December 28, 2013

in Real Estate Updates

chicago-7

Here’s a quick update on the status of Rental Property #5. I officially started the closing process with the lender yesterday, after they pre-qualified me to purchase another rental property. Woohoo! Even better, this lender won’t be scrutinizing my debt-to-income ratio (like what happened during the last purchase with Rental Property #4), so I won’t be needing a co-signer this next time around. SO AWESOME! 

I didn’t lock the interest rate, however, since they were quoting me 4.99% at 30 year fixed mortgage. That seemed kind of high to me, so I decided to hold off until this upcoming Monday. I also didn’t want the 40 day window to start ticking yet (after 40 days you have to pay a lock-extension if rates increase), as I’m still trying to stretch out closing for as long as possible (to help me build up more funds). The lender is targeting January 24, 2014 as the day of closing.

I’ve gone ahead and ordered an inspection, which should take place sometime in the next two weeks. Same for the appraisal. The only real catch with this property is that the lender is requiring me to come up with 30% downpayment for this purchase (not the standard 25% for investment properties). The reason? This will be my fifth rental property, and the underwriting guidelines change when you get to #5! Lenders have to be more cautious, so they require more downpayment and more capital reserves for the other rentals (6 months PITI on EACH rental!).

With a purchase price of $180,000, I will need to bring $54,000 in downpayment funds to the closing table. Further, to get through underwriting, I’ll need to factor in an additional $6,000 for closing costs, and probably a little extra to show some “margin”. So, I basically have one month’s time to hoard as much cash as possible… I’m about $12,000 short… Let the fun begin! 😉

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{ 15 comments… read them below or add one }

1 JC @ Passive-Income-PursuitNo Gravatar December 28, 2013 at 1:44 pm

Man, looks like January is going to be a busy month! Just curious, since they’re requiring 6 months PITI for each rental, which seems a little outrageous to me, will 401k money count towards that coverage or not? Interesting to see a 4.99% interest rate. I was basing my calcs off of a 5% but was hoping to see something closer to a 4.5-4.75%. How bad have rates increased due to the taper being “reduced”?

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2 FI FighterNo Gravatar December 28, 2013 at 2:15 pm

JC,

Absolutely 401k plus Roth IRA count towards reserves, although only 70% or so will count. I’ve been relying on these retirement accounts since rental #1. 🙂

Rates were only at 4.75% like two weeks ago… 4.99% seems like a huge spike in such a short period of time… In the grand scheme, still a low rate, though, which is another reason why I’m so anxious to lock down as many properties as possible.

Take care!

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3 Fast WeeklyNo Gravatar December 28, 2013 at 2:53 pm

It’s looking good FI. Congratulations on having another hurtle down. I was wondering if you were making any adjustments to your 401k or Roth as a result of the stock markets run up and your increased real estate leverage. Taking some portion of your stock exposure and putting it in high yield savings or a money market account might help keep your ship balanced.

It’s incredible how much rates have run up in the past 8 months. I expect a 30 year fixed loan to climb at least another 25 bps. The 10 year yield may bounce down off of 3% in the short term, but I think you’re spot on that rates are moving higher……with or without the Fed. I hope you can shuffle the money around and lock in another winner. We’re all pulling for you FI!
-Bryan

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4 FI FighterNo Gravatar January 3, 2014 at 9:25 am

Bryan,

Thanks! No plans at this time to make any changes to the retirement accounts, just full speed ahead, as normal.

Yeah, rates are quickly moving up again, which is always my biggest fear. To be able to lock in five properties at under 5%… I’ll take it!

All the best!

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5 TraderNo Gravatar December 30, 2013 at 2:33 am

Hello
I read you from Portugal and really enjoy to know about your achievements.

Impressive!

have a nice 2014!

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6 FI FighterNo Gravatar January 3, 2014 at 9:26 am

Trader,

I’m actually from the Bay Area, or Northern California.

Best of luck in 2014! Thanks for the support!

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7 ElroyNo Gravatar December 30, 2013 at 7:37 am

I am curious [….] genuinely [….] if you outsource what is the true cost and if you don’t how much time do you spend with your rentals? And if you do outsource, it still takes time [….] ? It would be a good blog post for me to see [if you’re taking requests].

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8 FI FighterNo Gravatar January 3, 2014 at 9:28 am

Elroy,

Not sure what you mean by true costs, but I did document all numbers/results in the 2013 rental property recap post.

I do outsource all out of state rentals, and manage the local stuff myself… Only takes a few hours each month, so not too bad. This blog actually takes up far more time, if that helps with putting things in perspective.

Cheers!

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9 MartinNo Gravatar December 30, 2013 at 11:41 am

You have never stopped me amazing man! Where the heck you get all the cash so quickly? Do you have a press machine in your basement? Are you affiliated with FED or Ben and he shoots you a few bucks here and there? I struggle to cut the corners and get 300 bucks and you just a few months later after closing #4 say :I need to come up with 54k and maybe some safety margin of another 12k…” heck on which tree do you grow the green bucks? I will sneak out at night to reap a few 🙂
Well, hope you have best of luck and close successfully and get closer to your dream. I think I have to stay on your side as a friend when you become a rich landlord!! 🙂 I will be your bag holder or door opener or something 🙂

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10 FI FighterNo Gravatar January 3, 2014 at 9:33 am

Martin,

I always get a kick out of your comments, they crack me up. Didn’t you know, me and Ben are best buds, and he’s been helping me out this whole time… He’s helped me lock in sub 5% interest rate loans for all my rentals, so it sort of does feel like I’m printing my own money…

All the best!

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11 CINo Gravatar December 30, 2013 at 5:00 pm

Awesome! Have you considered dipping into your 401k for cash? Or do you need it to keep your asset pool high?

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12 The First Million is the HardestNo Gravatar December 30, 2013 at 7:42 pm

Coming down to the wire! Hope you come up with the $12k in time!

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13 Charles@gettingarichlifeNo Gravatar December 31, 2013 at 1:55 am

Would you consider doing a 401K loan if you’re short. You will need a sale contract but will be able to get a five year loan at a really low interest rate. Here’s to another great year in 2014.

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14 Brick By Brick Investing | MarvinNo Gravatar January 6, 2014 at 1:12 pm

You my friend are a machine!

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15 JeremyNo Gravatar January 9, 2014 at 10:01 am

Thanks for all the great info and I am loving your blog!

FYI I just contacted Prospect Mortgage yesterday for my 5th property and they said I could do 25% down – however, that is with a single family so a 2+ unit might be 30%? They seem to be one of the leading lenders that do mortgages for investors who own 4+ properties other than local portfolio banks who will only give me a 5 year term.

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