3 Reasons Why Your First House Should be an Investment Property.

Today’s feature comes from Michael Moore @MooreThanRealEstate (Instagram). His first real estate property was a multi-family home–a duplex. Here he tells you why your first house should be an investment property.

Today’s feature comes from Michael Moore @MooreThanRealEstate (Instagram). His first real estate property was a multi-family home–a duplex. Here he tells you why your first house should be an investment property.   

The process of buying a home can feel like a big scary rollercoaster ride. Once you get to the end, you realize how rewarding and thrilling it can be.  After purchasing my first multi-family home, I can definitely advise you to do the same. There are three reasons why you should consider investment properties as your first property:  

1. Low Down-Payment/Low Start-Up Cost: You will be able to utilize FHA financing to buy your home as a first-time home buyer. This allows you to put a minimum down payment of 3.5% of the cost of the home. FHA financing allows you to buy a property with 1 to 4 units. You can potentially live in one unit and rent out the other 3 units. Tip: I found out after my wife and I purchased our first investment property that we should have each purchased an investment property separately before getting married. This will allow each of you to take advantage of the low down-payment cost and double your investment potential. For example, instead of 1 to 4 units to rent combined, you could have 1 to 4 units each!  

2. Income Generator-Gateway to Financial Freedom. The top two most expensive items most of us will purchase in our lives are houses and vehicles. Not everyone needs a car but no matter what you do in life, you will need a place to live! By purchasing a multi-family house, you’re not only making one of the most expensive purchases in your life but you are also generating additional income. For example, a property with two units rents each unit at $750, with a total of $1,500 monthly rental income. This property has homeownership expenses of $1,095 monthly (i.e. insurance, mortgage payments, and property taxes which are typically made as one monthly payment).  In this scenario you will have a $405 profit/cash flow monthly ($1,500-$1,095). This translates into a yearly passive income of $4,860 ($405 x 12 months) from one property. More properties will allow you to multiply your profit/cash flow which can lead you to your financial freedom!

3. Quality Of Life. My sole purpose to purchase income properties is to improve my family’s quality of life. The more properties I purchase, the higher my passive income. This will allow me to retire early and enjoy life even more. Most people in America spend more time at work than they do with their families or doing what they enjoy. I love spending time with my family and I will do what I can to make sure I spend more time with them than at work. Investing in real estate and owning rental properties will help you generate positive cash flow.  If you are looking for a way to live a better life with your family, assess the risks you are willing to take and if you can, invest! 

10 Tips to Improve your Credit.

The best way to predict your future is to create it. Here are 10 tips to improve your credit score.

Majority of us will need good credit for a multitude of reasons, to get competitive rates on a car loan, private student loans, to get a rental property and to eventually buy a home. By any means, if you have enough cash on hand why get in debt; just pay up front in cash. To the rest of us, we need to be savvy enough to make good decisions to keep and to better our credit.

Facts: Just so you know, there are many items that will remain in your credit report for 7 years according to Experian, items such as late payments, bankruptcy (chapter 13) and civil judgments.
Bankruptcy (Chapter 7) will stay in your history for 10 years. Tax liens, depending if paid or not, will stay either 7 or 10 years from date of filing.

Even if we have made bad decisions in the past we can still move forward and work on the present and future. We first have to have an idea what determines our credit score.

There are 5 factors determining our credit score and they are:

  1. Payment History (35%)
  2. Total Debt compared to Limits or Amount Owed (30%)
  3. Length of Credit History (15%)
  4. New Credit Open (10%)
  5. Types of Credit Lines Used (10%)
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I have almost a perfect score and I don’t say this to brag but simply to tell you it’s possible with discipline and you can have it as well. I have followed many tips and I have helped others with the same advice. Here are 10 tips for you to start improving your Credit Score:

  1. Don’t Close Credit Card Accounts: These accounts will show the length of your credit history. Even if you are not using them and don’t want to be tempted, just put them away in a safe place.
  2. Don’t Max Out Your Cards and Do Not Go Above 30% Of Your Limit: For example if you have a $1,000 limit, do not charge or carry a balance over $300 dollars. Your utilization is a big factor in your score. If you have 2 cards, 1 with a $1000 limit and the other with a $2000 limit, now your overall limit is $3000. 30% of $3000 is $900(.3*3000=$900), so you should not have over $900 charged in those two cards combined.
  3. Pay On Time, Pay On Time, Pay On Time: This is the most important factor here. If you were late before, get caught up. If you can get a separate checking account for bills only and set automatic payments, do that so you won’t forget again and you won’t ever make a late payment. To date, the only bills that are not in auto-pay are my gas, electric and mortgage. Either because they fluctuate based on the season and because my mortgage is the largest payment and we get a 15 day grace period to pay depending on our pay date.
  4. Pay Off Delinquent Accounts: Remember that utility bill you stopped paying for at an old apartment? That urgent care bill or copay you forgot and went to collection?–yes–all of them, pay them off. Even if they stay on your report, showing it has been paid off is a plus for you and the clock will start, so it can be erased down the line. This will not help you increase your credit fast, the fastest way may be submitting a claim to all credit bureaus so they can ask the collection company for validation of debt.
  5. Reduce Your Overall Debt: First, know your debt to income ratio. The lower it is the better because it shows a good balance between your debt and your income. Whenever you are applying for any loan or even to rent, your debt to income ratio will be a factor. Add up all your monthly debts (mortgage, car loan, student loans, credit cards). Then add your monthly gross (before taxes) income. For example, let’s say your mortgage is $1,000, car loan is $300, student loans are $300 and credit cards are $200 with a total of $1,800. For this example, let’s say your total monthly gross income is $5,000, therefore you would divide your total monthly debt payments by your total monthly gross income.
    Total Monthly Debt Payments/ Total Monthly Gross Income= Debt to Income Ratio.
    $1800 /$5000=36% debt to income ratio.
  6. Check Credit History Report and Remove Errors If Any: Do an overall review of your report and make sure there aren’t any open accounts that you have not opened, if an account has been paid and the report does not reflect it, make sure to dispute them with each credit bureau. I found this article that discusses this tip in more detail, How to Dispute Credit Report Errors in 3 Steps. Don’t forget to access your free report Here.
  7. Get a Lower Interest Personal Loan: If you have a large balance on high interest credit cards but your credit is still good, you may qualify for a lower interest rate on an unsecured personal loan that you can use to pay off your cards. These loans will have a fixed term, meaning an established number of years for you to pay off the loan, so your payments will most likely be higher than the minimum payments you were paying on your cards. You will save money in the long run with this because the rate will be lower and you will pay it off sooner. When getting a loan ask for the rate (make sure it’s fixed), term, if there are any prepayment penalties and see if by enrolling in auto-pay you can get your interest rate lowered.

  8. 0% Interest Credit Cards: Again, if you have a large balance on high interest credit cards but your credit is still good, you may qualify for 0% interest credit cards. Keep in mind these 0% cards only have a short promotional period ranging from 6 months to 18 months give or take. Also, almost every time you transfer a balance to these cards, you usually pay a transfer fee which could be 3% or more of the total amount transferred. So let’s say you want to transfer $3,000 from a high interest credit card to a 0% card, if you transfer this amount now, your new balance, with a 3% transfer fee, will be  $3,090 ($3,000*1.03%). Now, let’s go a step farther, and let’s assume this card has a 12 month promotional period for 0% interest, this means after 12 months the card’s interest will sky rocket to God knows what-(well you will know, they have to tell you). I only recommend a transfer if you can pay off the full balance during the promotional period. In this case, you will have to pay $257.50 monthly ($3,090/12) assuming you will not charge one additional penny on this card just because you think “well it’s interest free.” Remember, this is a way to pay off debt faster not accumulate debt faster. Disclaimer: I only recommend the 0% interest and personal loans to people who have a plan and know they will stick with it. You have to be intentional with your financial goals and this is not a matter of just moving debt around. You have to be disciplined or you are just going to be in a non-ending debt cycle.

  9. Don’t Open Cards Just To Open Them: Remember 10% of your credit score is attributed to new credit lines opened. Going around opening every department store credit card just to save 10% on your new pair of shoes is not smart, in reality it’s costing you 10% of your credit score; do the math.
  10. Get A Secured Credit Card: I have no experience with this one but I have been told that you could go to some banks or online and get a secured credit card to start helping you build credit. With these cards, you have to put money down to be able to use it, kind of like a debit card but debit cards don’t help you with your credit. I think this is good for young adults trying to establish and build credit responsibly and for adults who may not qualify for major credit cards. I came across this post about some secured cards, but again I cannot personally recommend one so do your research and ask around or please drop a comment below if you have experience with a good one.

Additional Tip: Become An Authorized User: This tip didn’t make it to my list above due to its riskiness but it could help you if done right. If you have someone who is financially sound and you trust completely and they are willing to add you as an authorized user, do it. Pretty much the credit card company will issue a card with your name on it on your friend’s limit and already existing credit card. Now, the person responsible for this account is someone you trust, so I am not saying go ahead and go on a shopping spree on their name. I’m actually encouraging you to not even touch the card, but let this person just continue to use it so it helps you with building credit. This can backfire on you though if your friend stops making payments or is late on any payments. Think this tip thoroughly because it can also lower your credit.

“THE BEST WAY TO PREDICT THE FUTURE IS TO CREATE IT.”

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3 Tips For First Time Homebuyers.

Today, I will be giving you three tips you should highly consider prior to starting the home-buying process and a free worksheet I use to keep track of my credit score and credit report history.

Looking back to when I was house hunting for my first house, I remember the million questions I had, but I also remember the trustworthy people along the journey that helped me through this process.

Today, I will be giving you 3 tips you should highly consider prior to starting the home-buying process. Also, don’t forget to check out my Real Estate website. 

  1. Check your Credit History and Credit Score: Scores run from 300 to 850 and of course the highest your score the better your mortgage rates may be. You are entitled to 1 report annually for free and you can get it here. Also, if you have a credit card, many offer credit scores for free as a cardholder benefit, if not look into sites like Credit Karma. Some of the things you can start to enhance your credit is pay down debt, credit card debt, pay off delinquent accounts and remove paid debts or errors that appear in your credit history report. This can take a while so it’s always a good idea to start now. Here is a free worksheet I use when I review my score and report annually.
  2. Get a mortgage Pre-Approval: Would you ever go to the grocery store with a list without knowing how much cash you have in your wallet or how much you have in your bank account? No, right? So this concept applies here as well. Doing this step is essential to know exactly how much mortgage and property taxes you can afford. Be mindful that mortgage lenders are different but some of the typical requirements for a pre-approval include tax returns, pay stubs and bank statements. You can shop around for a lender or you can also ask a trusted Real Estate Agent for a lender recommendation.
  3. Save your Pennies|Down Payment|Closing Costs & Other Expenses: The sooner you start saving the better you will be. Needing 20% as a down payment is a myth, nowadays you can buy a home with as little as 3% or 5% down depending on your mortgage lender. However, keep in mind that if you can’t put 20% down, you have to pay a monthly payment towards Private Mortgage Insurance (PMI), this is protection for the lenders. But don’t let this stop you either. Although I am not a mortgage lender and do not know the factors they use for their underwriting and to figure out this payment, I’ve seen some PMIs at around $30 monthly, which is still better than paying hundreds towards a rent and you see nothing in return at the end of the lease.  Keep in mind you will also need funds towards closing costs which can be some thousands of dollars; make sure to ask your future lender all these questions.
    As a homeowner having an emergency fund is necessary to prepare for unanticipated repairs, maintenance and or renovations. You will no longer have a landlord to run to when a problem arises but it’s a beautiful feeling knowing something is yours.

“DON’T WAIT TO BUY REAL ESTATE, BUY REAL ESTATE AND WAIT.”