There were many who bought much more house than they could manage and there were many who were taken advantage of. This we know. The blame game falls flat in this case, and as blame games go, they don’t offer solutions. What has happened is an across-the-board drop in the US savings rate and a spike in overall credit debt by US homeowners and the government itself. However, the biggest by product of this market climate situation is greater scrutiny by mortgage companies and banks.
The risk taker just aren’t out there as they were 5 years ago. So, for investors your credit and relationships with these institutions play an even stronger role than before.
720 is the magic number!
Investors with good credit can qualify for multiple homes — typically two to five for individuals and as many as 10 for couples. This baseline creates the foundation for your business. Once you get established, your business can then subsequently pick up the slack. Good credit holders can demand lower interest rates, shorter repayment schedules and better loan terms. And with good credit, sellers of properties are willing to carry part of the value of the home through owner-financing deals. This is a much easier way to get property than through multiple loans though multiple banks.
The rule of thumb that will serve in good times and bad is to keep your expenses (taxes, insurance, and monthly mortgage payments, etc) at or below 30% of your monthly gross profits. Easier said than done, I know. But by keeping this ratio of 3:1 (expenses to gross), you enable your own lifestyle as well as your business to maintain your credit score as high as possible. Trust me, it does work! This mentality creates habits that force you to pay bills on time while creating wealth.
-Richard
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