Here’s the Video Transcript:
– This is gonna be a fun one. In this episode of the Mortgage Minute we’re gonna talk about how to invest in real estate with bad credit and we’re starting right now. Before we do anything, my name is Matthew Tortorelli and I’m a mortgage loan officer in California, Arizona, Texas and if you like fantastic content like this, consider subscribing. And don’t forget to smash that like button, it’s fantastic for the YouTube Algorithm. Now before we get started I just want to let you guys know I set this scenario up based on an FHA loan so if you don’t qualify for an FHA loan, don’t worry, you can substitute a portfolio product and I’ll put a card for portfolio product right here. But for this scenario you’re gonna need to qualify for an FHA loan.
So let’s get into it. The first thing you’re gonna have to do is you’re gonna have to find a property that’s still going to cashflow even with your FHA loan. You may ask, what is cash flow? Cash flow is what is left over after you’ve paid all expenses having to do with the property. We’re talking about capital expenditures, we’re talking about vacancy, HOA, your principle interest taxes, insurance, and mortgage insurance, where applicable. You’re gonna have to live in this property for at least the first six months ’cause you’re gonna have to meet that primary residence requirement, which says you have to live in that property for the first six months in order for it to qualify as a primary residence.
So we’re gonna have to figure out a way to make money while you’re still living in it, okay? Now basically you have two options. Option number one is you can find roommates and you can live in the city where you can command a high enough rent from those roommates, where you can at least try to break even on your payment. Your goal is to have zero housing payment and at least try to cash flow even while you’re living there. There’s no reason why you can’t do that. A lot of people get around the roommate requirement by simply buying a multi-unit property. Not a lot of people know that with FHA and conventional, we’re talking FHA just for this scenario. You can buy between a one and four unit property, no problem.
The next option you have is to use Airbnb. Now if you have a single family residence here in Phoenix, you can easily command fifty dollars a night for just a single bedroom. And if you’re willing to rent out maybe two of the bedrooms in the house, you know your goal is, again, to break even on that mortgage. Airbnb is a fantastic option for you if you live in a city where it’s legal and profitable. I think it’s generally more preferable to use Airbnb because you have more control over the process, you’re not giving over rights to any part of your home or property or multi-unit. You can Airbnb a multi-unit, just like you can Airbnb a room in a single family residence. The earning potential with Airbnb is also significantly higher. Okay so let’s recap. You have your property, you’ve been there for six months, you’ve been breaking even on your payment every single month through Airbnb and or renting out a room or two to roommates. You’re already cash flowing somewhat, or at least breaking even on the deal.
Now your next step of the process you can go one of two ways. You can either refinance the loan into a conventional loan because now you have significantly better credit. Why would you want to do that conventional loan? The mortgage insurance will automatically fall off at 78 percent and you can request it off at 80 percent. With FHA it never goes off; you have to refinance out of it. So you can either refinance into a conventional, stay there for another six months and then find a longterm tenant for the property, rent it out, and then go buy a new primary residence. Rinse and repeat and continue doing that until you are rich enough. Option number two is you can simply keep the FHA loan, keep cash flowing and simply move a tenant in there and increase your cash flow and just keep the FHA loan. If you want to speed the process up and you’re willing to lose a little bit on the mortgage insurance, keep the FHA loan because if you did this right, you should be cash flowing regardless of what loan you’re in because you planned ahead.
Thank you so much everyone for watching. Make sure to smash that like button. Make sure to subscribe, leave a comment. It always helps the YouTube algorithm. It helps me show up in search, and it helps me make more videos for you guys. Now one thing I just want to clarify, is you can only have one FHA loan at a time. So the second time you do this process, you’re gonna have to go conventional. Thanks again, everybody. Peace..