On To Plan B

So I put in the offer of $47,000 for PP4 #7, and needed the pre-approval to complete the offer. I went to Empower and applied, but they gave me problems. They said that everything residential is 25% down now, not the 20% it was a couple years ago. Then they said I don’t have enough money to buy the place. I asked them to clarify, and they said I needed six months of reserves for every property I own to get the loan. So what does that mean?

Just look at the two arrows and laugh

It means that I would need $31,000 in cash to apply for a loan of $35,000. Yeah, go ahead and read that sentence again. Other banks said the same. So I applied for a loan from GFB Bank, a savings bank that doesn’t sell to Freddie Mac and Fannie Mae. They didn’t have the rules about reserves, but carried a hefty 10% interest rate. That didn’t matter however, because they had longer terms for investment loans (20-25 year programs instead of the standard 15 years). I put in my application and they called back saying that I need a letter of explanation for the missed payments I had all the way back in 2010. Yesterday morning, GFB Bank called me saying that I’ve been denied due to what happened 5 years ago, completely ignoring my 700+ credit score and qualifying income.

This is the part where I’m supposed to rant. I’m supposed to talk about how frustrating it is that the upper class need no help, the lower class get all the help, and the middle class once again gets shafted because they get stuck with the regulations of the upper class without upper-class money. I’m supposed to complain how unfair it is that all my years of hard work in repairing my credit means nothing to banks like GFB, while banks like Chase, Wells Fargo and Empower change their rules on a monthly basis. Some of those banks won’t even touch a mortgage so low. So, why am I not angry? Well… I kinda don’t care. And it has to do with that post I wrote… you know the one. Yeah, that one.

I’ve detached myself emotionally from this whole process. It just doesn’t seem to matter as much as it did before. None of it does. Bringing those thoughts from the background to the forefront of my mind has had a very strong effect on me, and I think it’s in a positive way right now. Being mad is a learned emotional reaction. Once that goes away, I’ve got nothing. I used to be afraid of that feeling of nothingness, as it means I can do some pretty shitty things and not feel anything about it. But I think I’m ready to take that next step in my evolution (or de-evolution, depending on who’s looking), and use it to help me through this journey towards paycheck retirement.

So Plan A is a bust thanks to new rules imposed by Freddie Mac and Fannie Mae about reserves. So now it’s Plan B. PP4 #7 and its $28,000 of instant equity is gone, and I’m not going through another savings bank with their high interest rates and persecution for 5 year old mistakes. So I’ll have to adapt to what the normal banks/credit unions want: more reserves. Plan B is to build up money from now until I hit $60,000. By building up my cash and not making any quick decisions, I keep all options on the table. I may purchase PP4 #5 if it’s still available, or I might be able to find a four unit with a finished (or finish-able) attic. I can save up $60,000 to pay off Property 3 and my car loan, giving me an extra $700- $800 every month (14% - 16% annual return) by the end of 2016. I can pay off two properties by the end of next year, and then save up to buy Property 4 in 2017. By that time, my credit report will be wiped clean of past mistakes and I can get a loan without the need for reserves. There are so many scenarios that Plan B makes available, and that feels good.

Setbacks are a part of life, especially mine. Plan A is a bust. So now it’s Plan B. If Plan B fails, then I’ll come up with a Plan C. It's an "onto the next one" mentality, and I'm in the right business to have it. The real estate market is filled with tons of opportunities every month so that, when these setbacks happen, there will be another path that will present itself. That’s the beauty of real estate investing: flexibility. And who knows? Maybe I’ll end up with a better property than the ones out there now. With my new way of thinking, I’m looking forward to what the next half of 2015 will bring.

P.S.: I think this blog will be much easier to read without all the anger and emotions. While I feel my new way of thinking is a work-in-progress, I think it’ll be easier for me to get real information from here without all the cursing and threatening of lives. The first reaction is always emotional. But the second reaction is where I usually get the best information. That’s worth more than the potential long term risks to my mental stability.

P.P.S.: I just realized something that's pretty incredible. The only reason why I'm being hassled about reserves is because PP4 #7 is a RESIDENTIAL property! Property 3, for example, is a four-unit that was bought as a commercial property so I didn't have to worry about reserves so much. Banks focus more on the profitability of the prospective commercial property than on what I currently hold. Man, how did I not see this before??!! When I go for Property 4, I'll make sure to ask about commercial lending. If it's still the same 20% like it was for Property 3, I still have a shot at buying a good property this year. Awesome!