Which First...Personal Residence or Rental?

First, thanks to Steve for the inspiration for this topic.

 I'm glad you're thinking ahead to make sure you know what you're getting into. The last thing you want to do is go out and buy a home, whether it's a personal residence or rental first, and then find out you just put yourself in a position where you can't do the other. I took a slightly different spin on the question, but I think I'll get the basis of it answered.

First, let's cover the basic differences between owner occupied loans and non-owner occupied loans. With conventional financing, you have a few different options on the personal residence side. You might be able to qualify for a low down payment program and put down as little as about 3% of the purchase price, or even zero down if you live in an area where the properties may qualify for USDA financing. Keep in mind that with either of these options, likely you will be paying mortgage insurance in addition to your typical principle, interest, taxes and insurance (PITI). If you can put a significant amount down, you might be better off going with a 20% down program without the mortgage insurance.

On the non-owner occupied side, you'll see a big difference in down payment requirements, as well as a difference in rates. Typically you'll need 15-20% down to purchase a home that will be a rental property. You'll also see slightly higher rates. This is a reflection of the lenders perceived risk in this type of loan. The more "skin in the game" you have, the less likely you'll default on the loan. The nice thing about these loans, is often you can use a portion of the rents to help qualify for the loan. For a new purchase, you might be able to get 75% of the rent counted as part of your income to help qualify. Once you have 2 years tax returns operating the home as a rental property, you can then use the actual income of the property to qualify for additional loans.

One strategy to consider is actually buying your personal residence first, and converting it into a rental property later. The benefit is that you get the low down and lower interest rate terms of an owner occupied property, even once you convert it to a rental. Check your loan terms to see if it states that you must live in the home for a specified period of time first. Make sure you do your calculations first as well, as when you go to purchase another property in a couple years you will likely have to be able to qualify for both the existing mortgage payment as well as the new one you're attempting to get. This may not be the case if you have gained some equity in the property, but be prepared for it just in case, especially since there's no telling what loan programs will be available 2 years down the road. Something you might even consider doing that could help with this is buying a 2-4 unit residential building. For 2-4 units, you can still get residential financing, and you then have additional units paying for your mortgage that you can use as income to help qualify for both the initial loan, as well as another loan later. If the rent of the other unit(s) covers, or at least almost covers the mortgage (or better yet the building cash flows), you're golden in a couple years and you won't have to worry about trying to qualify for both the current building and an additional one.

The other benefit with buying a future rental as a owner occupied home first is that, if you use a low down payment program for the initial purchase, you're using more leverage on the property. If you buy it as a rental first, you are putting more of your own money in, and you can't get that money back out unless the property and rents go up in value enough to be able to refinance later. As a rental property, with conventional programs, even when you refinance you will be required to keep a larger portion of equity in the property. With a low down owner occupied loan, you have less of your own money in the property, and more of other people's money in the property. As long as it still cash flows with the higher leverage, that allows you to use your own money for other investments.

Now, there's one wild card I want to throw in the mix here, and that is seller financing. A lot has changed with this since Dodd-Frank went into effect, but seller financing can be and still is done on a regular basis. There are a ton of benefits to negotiating seller financing. You're negotiating directly with the seller, so there is a lot more flexibility to the terms that can be created versus the "our way or the highway", "take it or leave it" banks. The other great thing is that, if you create seller financing on a rental property, that loan is not on your credit report so it most likely will not count against you and hurt your ability to qualify for a conventional loan. Why not go out and find a rental property that you can buy with seller terms, and also go buy your personal residence? "Why in the world would", you may ask, "would a seller finance the sale of their property?". Well that, my friend, is an entire topic by itself and for a separate post at a later day (I guess I just figured out the topic for my next post).

One final disclaimer; conventional financing terms, programs and criteria change on what seems like a daily basis. Make sure you're connected and build a relationship with an experience, knowledgeable mortgage broker who stays up on the latest changes and can help create a game plan for you based on your specific situation. Lastly, make sure you make a plan, as it sounds like you are, but then act on it. Don't overanalyze all the different potential scenarios. Be smart, come up with an action plan that makes sense, and then go out and make it happen.

Facing Setbacks

We've all been there before. Things are looking up, you're making progress and gaining some ground towards your goals, and out of nowhere something changes. Your momentum and the ground you've gained is threatened by an event, a change in circumstances; perhaps something that is even completely outside of your control. Now you've got a choice to make: are you going to let this setback get the best of you, or are you going to get the best of it?

It's a simple decision really. Too many people in our society play the victim. You know what? Even if you are right, and you are the one who got the raw end of the deal, playing the victim and placing blame isn't going to make the situation any better. By doing that, all you do is give the negative side a bigger victory. The best thing you can do is stay positive, learn from whatever the experience is, and move on. Use the setback to fuel you.

Whatever setbacks you may be facing, remember that they temporary and that you can and will get past it, and be better for it. Failure and defeat only get the best of us if we let them. Life is about the experience, and if you're out there living, things are going to happen. You're going to get bumps and bruises along the way. It's these bumps, these challenges, that force us to grow; to become better. A life well lived is a life with both victories and defeats. But where there is defeat there is opportunity. At the very least we can take the experience and what we've learned from it and use it in the future, to make ourselves a better person, a better business owner and a better member of the community.


-BJN

"Opportunity often comes disguised in the form of misfortune, or temporary defeat." Napoleon Hill

Communication - A Changing World With an Unchanging Principle

Communication is a constantly evolving piece of society. Just look at how far we've come in the last few decades. From written correspondence and phone conversations to social media and texting. These changes certainly make communication more convenient. But does that also mean that it's as effective?

Communication style and means will continue to evolve, but one thing will always remain the same: personal, face to face conversation is the highest form of communication, and is what gets the best and most rewarding results. With all the new and upcoming ways to "check in", chat and communicate without ever uttering a word out loud, the art form of face to face communication is slowly getting pushed to the background. Yet, this type of communication, if harnessed, practiced and perfected, will always yield the best results. We are still in a relationship based society, and face to face communication automatically puts you in the higher category of those you interact with on a daily basis. Why? Because it's becoming more and more rare to actually take the time to sit down with someone in person. When someone takes the time to actually meet in person and focus on and show genuine interest in them, it can almost come as a shock. By the way, talking to them while constantly checking your phone does not count as personal, one on one communication. If you are distracted, you might as well not even be there. But focused, personal time with someone can build the relationships, whether business or personal, that last and create mutual benefit.

Don't take this the wrong way. I'm not saying there is no place for social media, texting or the like. I certainly use these tools on a regular basis. But they're just that; they're tools. They're not meant as a replacement for personal communication. The point is that you can't let those things replace personal contact and building relationships the "old fashioned" way. As technology becomes even more ingrained in our culture, "face time" will become even more important. If you master the art of personal communication, it will be increasingly easier to set yourself apart from everyone else. In my opinion, taking this personal approach as it becomes more and more "obsolete" in the eyes of the tech world is actually the greatest opportunity of our day and of the upcoming years ahead of us. No matter what other new forms of communication keep coming out, embrace the personal, in-person approach and you will be embracing the key to unlock greater potential in your business, your personal relationships and your own personal fulfillment.

-BJN

"The problem with communication is the illusion that is has occurred." -George Bernard Shaw

Using Fear as Motivation

Fear. We all experience it. When something new, unknown or unexpected comes into our lives, often times we have a sense of fear involved. Our mind goes through all kinds of "what if" scenarios, most of which don't have even the slightest possibility of coming to pass. But that doesn't seem to keep us from sometimes letting those thoughts get the best of us, preventing us from moving forward. The key to overcoming this is to put fear in a new perspective.

First, take a step back and look at what the fear is. Is it the fear of failure, or the fear of rejection? Maybe it's the fear of not knowing what next steps to take once you take that first big one to get the ball rolling. Whatever it is, ask yourself this: If I don't try, even though I'm afraid, will I regret not having given it a shot? Ah, the fear of regret. It can certainly be a great motivating tool. I'm not saying it should be your only source of motivation; not by any means. However, if you find yourself frozen and unable to move forward, stop and picture a couple things. First picture yourself having moved forward, and having succeeded in doing so. What have you accomplished by moving forward with success? What goals are you closer to now? What does your life look like having taken that step in spite of the fear that may have stopped you? Now picture what it would look like if you didn't move forward on it. What would your life look like this time? Here's the big question: Looking back, will you regret not having at least tried?

I come back to Theodore Roosevelt's quote a lot, but it's so applicable to this that I need to bring it up again. Roosevelt said, "The credit belongs to the man who's actually in the arena...who at worst, if he fails, at least he fails while daring greatly, so that his place shall never be among cold timid souls who know neither victory nor defeat". Those are some powerful words. If you never take risk, sure you'll never know defeat; but you'll also never know victory. Worst of all, you could find yourself at the end of your life, never knowing what you could have done, or what kind of an impact you could have made. You'll only know what you could have tried but didn't, and wonder what your life would have been if only you had. Don't let yourself get to the end of your life, with the haunting question running through your mind - "what if I had...". Instead, step out, move forward, face your fears, and one day you can look back and say "I did".


--"We must all suffer one of two things: The pain of discipline or the pain of regret or disappointment." -Jim Rohn--

How to Create Positive Change in Your Life

From my own experience and my observation of others, I've discovered a few different things about what steps are necessary to move from being in a place you don't want to be in your life to pursuing and achieving exactly what you want.

The first and most important thing you need to do is to know what you want. It doesn't do any good to chase a dream if you discover at the end that it wasn't even your dream! Make sure your goals are yours and not someone else's, and not what you think they should be, but what you want. Too many people don't know what they want, so they spend their lives chasing one thing after another, thinking each new thing will be the one that makes them happy. I'm not sure what is worse - not making the effort to chase anything, or chasing something your whole life only to discover it's not what you wanted! Take the time to sit down and really think out what it is that you want out of life. Go through each area of your life and write out what you want it to look like. You must know exactly what it is you want out of each of those areas. Only then can you take the steps to achieve the results you truly want.

Often times if you feel low or depressed, it is because you are not doing what you know you should be doing. I've discovered this in myself in the past. I've also heard comments from others around me about their lives, and the root of it is based on this. They know they should be taking action on something, but they're not. They know they have the capability to do better, to do more with their lives, but they're not. When you know you should be doing better or doing more to pursue what you want, when you know you are not meeting what you are capable of, you beat yourself up mentally over it. The solution is simply to start taking action on those things. It may be something small or simple at first, such as making a phone call you've been avoiding, or it could be starting your business plan. Whatever it is, it just needs to be something that is taking you in the direction that you know you should be working harder to get to. It doesn't have to be huge, it just needs to be action. Stop putting it off. And trust me, when you start taking these small steps you will feel relief, as well as start building your confidence and sense of worth. Once that happens, the next steps are easier and it creates momentum toward your goals.

The last part of the equation is consistency. Writing out what you want and then taking the first step is great, and will start you on the right path, but the right path can't take you to its destination if you are not taking additional steps. This is not an escalator, this is a stairway. You don't get to take one step and sit back and think you will keep making progress. You have to keep taking action. Consistent action is necessary to keep things moving, or you will find yourself right back at the previous step; knowing you should and can be doing more. Don't let that happen! Once the ball gets rolling it's easier to keep it rolling. But when it stops, it's hard to get it started again. Don't let it stop; keep taking steps every day that help you get closer to the life you want. You deserve that life, and don't let anyone tell you any different.

I encourage you to take these steps seriously and go through them one by one. I promise you it will change your direction and change your life. Keep your goals, what you want your life to look like, in front of you on a daily basis. Remind yourself what you are pressing towards. Know what you want, take action on those things, and do it consistently and you will discover abundance.