Welcome to another episode of Ask Marco where I answer your investing related questions. I’m your host Marco Santarelli, welcome to the show and the episode. Thank you for listening and being a subscriber. If you haven’t subscribed to the show, click that subscribe button, and I hope everybody’s doing great. We’re in the middle of the summer. And even though we have this Coronavirus craziness going on around the planet, I just hope that you and your family are all doing well.
Today’s question is pretty interesting, comes from Brian and he asks, How to Invest When You’re a Nomad? That’s interesting. I think this is the first time I’ve ever heard something like this. Although I know people who are nomads and do invest from all over the planet, wherever they may be. So Brian says, hi, Marco, my wife and I just recently sold our primary residence to have more time with our kids and live between my in-laws, our vacation rental, and on the road, camping.
We want to invest in more real estate with the capital from the house, which is approximately $200,000, but we don’t show an income. My wife’s remote consulting job is on hold until next year. And I work as a handyman while in town staying at my in-laws. So we currently don’t show much or any income after business expenses. We do have a vacation rental, but because we manage it ourselves, there is no to little profit after expenses as well. What are our options for getting a loan to purchase either another vacation rental we can manage or a duplex we can live in on one side and rent the other, or two full-time rentals in areas like on your website, noradarealestate.com. I don’t want to put more than 50% down. Thanks for what you do and what you’re doing and hope to hear from you.
Thanks, Brian.
Brian, thank you for the question. So this is an interesting, but not an unusual question first and foremost, who cares if you’re a nomad, it really doesn’t matter where you live, or even if you’re a resident of the US although that helps with a lot of the financing options, but literally you can invest in the United States real estate market from virtually anywhere in the world. So if you’re a nomad within the US that’s a great situation to be in the question is really about your qualification rather than the fact that you are a nomad and you’re not anchored to one physical address somewhere in this country. So I’m not sure when your income stopped. I wasn’t sure if you alluded to that. But my first question is when was your last return tax return? Was it 2019? If it was 2019 and you can show income, you probably qualify for financing. So that would be my first question. And if that’s a good thing, then we could probably stop the answer to the question right here, because you probably qualify. If you can show the income and you have good credit, depending on the lender and what kind of loan you’re getting, you might need to show your last two months or three months worth of bank statements to show that you have something in there or something coming in. So they may want to verify that you actually still have income coming in. With conventional loans, they’ll often ask for your recent tax returns and, or your recent W2 statements or whatever it may be. Anyway, talk to your mortgage broker about that. I’m not going to get into the weeds about that, but it really comes down to qualification. So if you can document your income right now, even though it may not be a lot, I don’t know what a lot is, that’s a relative term, but if you can show income and you’ve got good credit, and you had qualifying income over the last two years, you may be able to do something on the conventional side but don’t quote me on that. Talk to one of your lenders or mortgage brokers, or just talk to my team here. We’ll put you in touch with several of them.
The next thing is understanding the different types of loans that may be out there. Now, historically, we’ve had four basic kinds. At least this is how I classify the types of loans. There’s the full doc or full documentation, the low doc, the no doc. And then the stated income loan. There’s some overlap between these they’re not mutually exclusive, but full doc is what you typically see with your full-blown, conventional financing. This is the best and cheapest financing you can get. And you’re basically showing, you know, all documentation, which is essentially some bank statements and your last two years tax returns and maybe some other supporting documentation. So you’re really showing improving that you have the income you claim to have. The low doc is just a scaled downlight version of the full doc loan. They’re again, going off good credit to great credit and having some light documentation to verify income. The no doc is the next step along that line. And that is essentially no documentation. It’s heavily based upon your credit profile. The stated income is essentially similar or the same as a no doc loan. You’re stating your income. You’re typically going to have very good credit to excellent credit, to qualify for stated income. And there is not a lot of option out there for a stated income loan for non-owner, occupied investors or people. I’ve seen a few stated income loans come and go, I think that was before COVID. So I’m not sure. In fact, I just texted one of my mortgage broker lenders and he hasn’t replied back. So I was hoping to have that before this recording, but there is the possibility that you can get a stated income loan. Now, there is a however here with a portfolio lender, they’re going to look more at your credit and the asset than at your income. So you can potentially get a portfolio loan on asset-based loans from some lenders. There’s a few that I can think of that used to do the lending back before COVID hit in February, but I’m not sure if they’ve already come back out of the woodwork. I heard a rumor that they are up and running again and lending. So again, something I would need to verify, but definitely talk to my team here or, or your investment counselor here, and they can look into it for you.
Now, here’s kind of the last remaining tip. If you will, on moving forward, if you’ve got investible capital, and that is assuming you’re not stretching yourself thin here, you could use that investible capital as the purchase of property or the two properties you’re looking at. In other words, you’re buying all cash. Your invested capital is not only your down payment, but it’s the entire purchase price. So whether that’s one property, that’s less than $200,000 or two properties that are assuming they’re a hundred thousand dollar properties in that neighborhood, you get two of those properties, whatever it is, you can purchase properties, all cash and have those rentals and have the income from those rentals. Again, make sure you have some savings on the side. Some reserves, some emergency capital, basically your income or reserves to support your lifestyle are there. You don’t want to stretch yourself too thin if you don’t have income, but that $200,000 could go towards the purchase of one or two properties.
Then the strategy here is what you do is when you can show income and you have the ability to qualify, then you would essentially refinance those properties and pull out that 50% that you’re talking about. And that should be very easy to do. You could go as high as 70% loan to value 75, maybe 80%, but 50% loan to value is essentially a no brainer from the perspective of a lender. So that should be pretty easy to do. So with $200,000, you theoretically could invest in three to four rental properties with 50% down with that $200,000. Again, don’t overextend yourself, make sure you have living expenses and emergency reserves and whatnot.
Last but not least the final tip related to that strategy is to talk to one or more lenders or mortgage brokers that do specialize with working on investment properties and investors before you go ahead and do that because they can layout not only a timeline that you should work within in order to do that. So you don’t lose the ability to qualify from previous years’ tax returns, but they’ll also tell you what road are pitfalls to avoid in the process of executing on that strategy so you don’t run into trouble when you go back to them for that refinance, and then they turn around and tell you, well, I’m sorry, you, you know, you messed up here or you’re outside of a workable window that I needed to work within. So always work with your team, work with your mortgage broker or lender.
Alright, this is, was pretty much a high-level answer to your question. I mean, it’s hard to get into a lot of detail about this. The bottom line is that if you are a nomad and you’re not tethered to a principal residence, and you’re just going from place to place, that doesn’t matter. At the end of the day, it comes down to the two C’s or what I call the two C’s, your investible cash and your credit profile. So if you’ve got the cash and credit, you should be able to do that from anywhere in the world. Okay, Brian, I hope that helps. Thank you for your question.
And if you have a question about real estate or investing or finance or anything else, maybe you want to know if I have a dog who knows, just send it over to me, passiverealestateinvesting.com or just click AskMarco.com in your browser. And it will take you over to me. That’s it for today. Thank you for listening. I will see you on the next episode.
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