The message I’m constantly receiving on social media:
“I’m confused as to what to do on real estate. Sometimes i see dont buy and sometimes I see buy if you can get it under 33% of your income.”
**Here is the official BKF stance on primary residence real estate:**
1. Before even getting into the conversation on whether or not its smart to buy a house, you have to ask yourself do you even want a house?
Are you simply trying to buy a house because every other broke and struggling person around you is talking about doing so?
Are you mistakenly buying a house because someone told you it was an investment? (its not)
Are you trying to dump what little money you do have into real estate because you were told thats the only way for someone like you to build wealth and appreciation? (its not)
Have you gotten house fever and sold yourself on needing a larger residence for your kid and/or dog? (we’ve got to stop doing this)
Or have you been sold on the misconception that buying a house is cheaper than renting? (just a little simple math can show you its not if you do what you’re supposed to be doing)
Only once you’ve looked internally can you even PROCEED to #2.
2. Smart people buy personal residences for non external reasons, non investment reasons and ONLY WHEN THEY CAN AFFORD IT.
3. So then that brings us to # 3. No matter what sense we (BKF/The Winner’s Circle) try to talk into you, there will be a high number of you still getting house fever and buying properties you know you can’t afford simply for external societal reasons. This is known as trying to keep up with the Joneses even though you’ve yet to realize the Joneses are flat broke.
And for these reasons we have provided you a handy dandy debt stupidity cheat sheet.
As you see, at the bottom of our hierarchy of debt stupidity at the bottom, after pay day loans, cash advances, credit cards etc, you’ll find mortgages (and student loans) as the least stupid (but still stupid) debt to take out. So for these people who are going to do what we encourage you not to anyways, we can only aim to not allow them to get completely raped by the banking industry.
For that to happen we’ve provided the guidelines below:
A. You should be out of all non student loan debt (including zero credit card accounts open. No mortgage or low mortgage rate on earth requires a revolving CC account.
B. Your emergency fund should be 6 months minimum of your new SOON TO BE monthly expenses (real estate expenses included).
C. Your downpayment is very important however, more importantly than that, you should get your TOTAL monthly real estate costs below >>33% of your gross monthly income.<<
(Total real estate costs equal the monthly average for annualized repair totals, HOA, PMI, hazard insurance, home warranty, property taxes, annualized maintenance, [maintenance is different from repairs], increased amount for utilities, mortgage payment and everything else expense wise specific to your land type. Or you can add a general 60-70% more to what you’ve calculated your mortgage to be.)
D. Our criteria is more stringent than a banks, which it should be. For those who want to have a general rule of thumb to see if a bank will lend to you on a property, make sure your annual income (or your household combined income) is 1/3rd the amount of the mortgage you’re taking out. If you’re taking out a $300k mortgage, your household should be making $100k annually!
Bonus suggestion: Avoid 1 bedroom flat condos. If you have to choose, a townhouse is your friend.
Doing this can actually save you from yourself and ensure you’re actually prosperous in real estate.
4. Credit scores and credit reports- know the difference between a standard FICO score and CoreLogic’s CoreScore that has/is becoming the standard for what is now considered your MORTGAGE SCORE. This isnt 1998. If you’re going to be insist on taking out a mortgage, you need to understand that you do NOT need credit cards, car loans, personal loans and other consumer credit products to build your mortgage score. Mortgage scores are now being made up of rental payment history, cel phone payment history and student loan timely payments. Please do your research.
In addition, if your mortgage company is still strictly going off FICO scores for qualification, understand the following:
How a FICO Score is Calculated
A FICO score is made up of the percentages above. The person who just has student loans and who does the following credit wise, will have an 800-807 FICO score and be approved for the lowest tier mortgage rates:
- Payment history (35%): pay your student loans early and on time.
- Amounts Owed (30%): pay your student loan balance down by staying away from paying on other debt so capital to do so is available.
- Length of Credit History (15%): take out your small student loan balance when you are in undergrad or grad school and apply for a mortgage later in your 20s/early 30s.
- New Credit (10%): the object here is to not apply for any credit until you’re ready to apply for a mortgage.
- Types of Credit Used (10%): This category represents having a mix of types of credit, ie- installment loans and revolving accounts. Simply by having your student loans in good standing you will have 5% of this category. Remember both your student loans and your mortgage are INSTALLMENT ACCOUNTS. No revolving accounts, ie. credit card accounts, are needed.
**DOING THE ABOVE GIVES YOU 95% OF WHAT A “HIGH” FICO SCORE IS WITHOUT THE ADDED RISK OF POVERTY AND BANKRUPTCY THAT COMES WITH USING CREDIT CARDS.**
5. Renting and investing the difference- You’ll notice the fools who find out you’re renting will always judge you as if you’re stupid or less than. These people are known as coons and have zero idea how wealth works.
Its important to still know at the end of the day, the person who sinks all of their money into real estate, which has an average compound appreciation rate of 3% (or 0.4% in terms of real dollars) and has never learned to invest (which has had a 9.7% annual compound rate of return since 1926) , will EVERY SINGLE TIME be doing the exact opposite of what they thought they were going to do.
This is why there are relatively so many black seniors and parents with mortgages in the rural areas of this country yet their kids are going to school saddled with tens of thousands of dollars in student loan debt.
IF DEBT WAS SUCH A GOOD INVESTMENT AND YOUR FAMILY IS NOW MAGICALLY RICH, WHY IN ALL HELL DID YOU HAVE TO TAKE OUT MORE DEBT TO GO TO SCHOOL?
Ok then, now that we’re on the same page, your parents are broke and you’re about to be broker.
Why do they have car loans? Why are they borrowing from their 401ks?
We’re so used to paying things monthly that we don’t realize student loans aren’t what people with money shackle their children to. Student loan debt is only normal for normal people.
Don’t be normal. Be wealthy.
True wealth is generated from investing in the EQUITIES representing the companies your broke a$$ parents go to work for each day. You bought land to give you freedom yet you’re in debt like a slave. You bought a large house up on the hill for social status and now you have to work, scrimp, save and stress every month because you will be paying for that house in some form of fashion for the rest of your entire life.
6. Rental income property. Understand that everything we’ve mentioned above has to do with YOUR PERSONAL/PRIMARY residence. Rental income property from multi unit facilities you own under an LLC or S Corp IS an investment. You must understand that if you must use credit in business this is completely different than credit in personal finance. Build up your LLC (limited liability corp) credit lines, protect your personal finances by avoiding personal debt at all cost and THEN go into the landlord BUSINESS if you decide to. And even then you should be aiming at cash first.
Debt in personal finance = A NO NO
Debt against your fully incorporated business that is also fully seperated from your personal finances in the event things dont go as planned?= your choice.
This is how Donald trump file bankruptcy 50-11 times. He isnt filing PERSONAL bankruptcy, he’s filing BUSINESS BANKRUPTCY.
7. Myself. I have no current and will most likely never have a desire to purchase a single family residence. I’m living life like I never have before. I don’t have the stress of taking jobs I don’t like to make ends meet. I dont have the stress from considering doing illegal things to get some quick cash to pay off these payday loans. I don’t wake up everyday depressed because my student loan payments are due and I can’t find a 6 figure job to offset the cost. I don’t have to decide between making my rent or making my car note when I decide I want to go travel on vacation.
No no my friends, I will 1,000% be using rental properties in various parts of the country that my BUSINESS OWNS or staying in hotels before I ever get trapped in the personal debt addiction mind frame they teach you that you need to be in to buy houses and build wealth.
(sidenote: the best way to get into rental properties is to rent while buying rentals)
Instead, I invest my money into owning a portion of every single company you work for and every single loan company responsible for issuing you that credit/debt in the first place.
Thank each of you who refuse to stop struggling each month trying to keep your credit scores “intact” and going to work each day so that you can pay the living expenses of investors like me. Somethings telling me we have you by the balls for what…say..30 years or so?
Learn how to purchase houses in cash here.