Real Estate Rental Property #4 Update (October 23, 2013)

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Appeal… DENIED! I guess it was a long shot, but I was still hoping to pull this off. Oh well. Now it’s on to Plan B — finding a co-signer.

Now, who in their right mind would want to help someone co-sign? By co-signing, that person assumes all the risks (in the event of missed payments, the lender typically goes after the co-sign first since they have less debt!), and in return, gets none of the benefits. Granted, this is only temporary, but I’m guessing you won’t find too many willing volunteers.

In most situations, I would agree that co-signing is risky. For most borrowers, they borrow because they want to purchase that first home (owner occupied). They need help because either their credit score is too low, or their debt-to-income is too high. There’s a risk they won’t be able to make the monthly payments.

I would argue my situation is a whole lot less risky… and different. Unlike the above scenario, I’m not a risk! I’m not a first time homebuyer who’s purchasing more home than I can chew. This is an investment property and I’m only investing in it because it will make me money! Shoot, I won’t even be the one making the monthly payments — my tenants will.

Yes, my debt-to-income is too high (technically), but that’s only because of a (dumb) guideline in place that won’t count any of my rental income because the properties haven’t shown up in my tax returns over a 2 year period. Truth is, if my rentals weren’t so cash flow positive, I wouldn’t even be able to put myself in this situation to accumulate my third rental this year… and by the way, I have more than enough funds in reserve (emergency fund) to weather any potential storms. But in this situation, this “positive” ends up hurting me.

To close this deal, I only need the co-sign to be on record for 6 months. At that time, I will refinance to get their name removed. To eliminate all risk, I’m thinking of proposing the idea that I will make 6 month’s of mortgage payments in advance. The monthly mortgage payment should only be $336.46 (excluding escrow funds), so entirely doable. To put this number in perspective, one of my Silicon Valley properties has monthly HOA dues that are $306/month. Clearly, this isn’t an enormous loan I’m tacking on. 😉

As an incentive, I’m thinking about offering the co-sign a $1000 bonus for assuming “no risk”. Hopefully I’ll be able to convince someone to take the bait.

So, there’s my latest update for today. Not sure if it comes across this way, but I’m pretty irritated right now. 😉 This entry was more of a rant than anything. Please forgive me and have a nice day!

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MartinFI FighterPauline @RFIndependencewriting2realityAll About Interest Recent comment authors
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Mario
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Mario

Hi there I think you are not ready to buy property number 3 the bank isn’t stupid yes there is risk you should relax and save more money first everything happens for a reason.

All About Interest
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Hi FI FIghter,

I was wondering how you were going to buy up these properties so quickly unless you have a super high income currently. I had issues when I first was in the market to buy my current house because I had two recent rentals. The underwriters averaged two years of income from them but I was living in the condo and hadn’t rented it yet so it killed my debt/income ratios. I’m in better shape now because I have two years under my belt so I may be looking for rental #3 around the end of the year. Good luck and I look forward to the updates.

writing2reality
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FI, I wouldn’t worry about taking that chill pill. At your age, plow in and get elbow deep in there. I am hoping you can find someone who is amenable to your cosigning plan, as it is clear that you are well-funded enough, and are generating enough cash flow from your other rentals to support all of your properties over the short-term.

Pauline @RFIndependence
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I have used my mum and a long time friend a few times to borrow money. I was 200% sure I would be able to repay and they were happy with the interest, higher than their savings account. My mum always asks if I need more 🙂

Martin
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Fighter, send me an email with details. I might consider it.
M

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