The easy money is hard to get.
From 2009–2016 my wife and I have been extra frugal in hopes that someday we might save enough to make a meaningful investment. Since neither of us have won the lottery, picked the lucky stock, or received an inheritance, our nest egg so far is a result of saving one dollar at a time.
2017 has been an exciting year because finally all of those individual dollars have turned into a meaningful sum. This year we feel like it’s time to do more with our cash than let it sit in a savings account. Lately I’ve been looking for something to invest in. There are a few obvious options to consider:
- Buy a low cost diversified portfolio of ETF’s/stocks/mutual funds and watch it grow over the next 30 years.
- Concentrate our savings into an investment like bitcoin, a single value stock, or a commodity, hoping it will 2x, 3x, 10x+ in just a short amount of time.
- Play the real estate game.
- Fund some crazy start up that my buddy is trying to get off the ground and hope it pays back 10x in 5–10 years.
I don’t really like option #1 because it likely results in an average rate of return. I’m also not really into #2 because I don’t know enough about bitcoin, individual stocks, or other commodities to stay confident and keep from selling in the event of a downtrend. #4 is just nuts. The odds are too low. But #3….this one has me interested.
Real estate is fascinating. As a mid twenties DINK (dual income no kids) household, my wife and I can borrow $400,000+ at an interest rate of less than 4%. I can then take that loan at 4%, and buy property that appreciates an average of 7% annually. Plus..I get a nice tax write off:)
Look at this chart…that blue line climbs relentlessly until the 2009 financial crisis, and then it skyrockets again.

So what’s the play? How do I get in the real estate game? From everything I’ve read, it seems like you’re really only in the game once you have two houses. In our case, we’d live in one and rent out the other. Here’s the breakdown of how I think we might be able to get in the game.
First — we got crazy lucky when we bought the house we live in now. We had no idea why we were buying a house, we just thought we should, and it turned out to be a great buy. When we first bought, we could only put 5% down, so our mortgage payment was really high (PMI is stupid), but a year after we bought I found out I’m eligible for a HUD 184 mortgage loan (because I’m part Choctaw Native American), so we refinanced into a 30 year fixed with a 3.35% APR and NO PMI. Our mortgage on this place (PITI) is $1430/month.
Our home was built in 2003, our home warranty put in a new HVAC, the roof is in great shape, we’ve even got solar, and Placer County has high demand for rental homes, so we could rent our house for $1750/month. That means if we can figure out a way to buy and move into house number two, we’d get a great ROI by turning our current house into a rental. Here are the numbers.
Property #1
$1750(rent)- $1430(mortgage) +$430(principal)= $750/month gross income
$327,000(Current home value) *0.07( avg. yearly appreciation) = $22,890+ home value added yearly.
$12,000/year tax write off at 25% income bracket= $3,000 back in my pocket
All said and done, best case scenario, I could increase my annual income by about $35,000/year turning our current home into a rental property. Obviously not all of this income is liquid, and I’d pay capital gains on the appreciated home value if I sold, but these numbers would be hard to get in the stock market.
Property #2
Next, we’d take our savings and use it as a downpayment on a second home. Unfortunately though…getting into that second home is a lot harder than I had hoped:(
Here’s the thing I didn’t realize about getting into the rental game — Underwriters use a one size fits all pre-qualification process that makes it really hard for new guys to get in the game.
Without 2 years of history as a landlord, banks are going to require us to include both mortgage payments in our debt to income calculation. With my student loans, one car payment, current mortgage, and a new mortgage of around $2200/month — we’re going to be just over the maximum debt to income limits, which is INSANE considering that by making this move, we’d actually be increasing our annual income!
And this brings me to the real reason I wrote this post. It’s extremely frustrating that perhaps the safest/smartest investment choice for us is going to be taken off the table due to tight regulation in the mortgage industry. I am all in favor of consumers being protected from predatory lending, it makes me angry to hear about the abuse that took place in the mortgage industry back in the 2000’s, and quite frankly, I think it’s insane for anyone to buy a house and take on a mortgage that costs 50% of their monthly income.
But why can’t I walk into a bank and get a loan by proving that I’ve got a business plan and a meaningful amount of collateral I’m willing to bring to the table? We’re the little guys who really want to be the big guys someday. We want to start the snowball rolling now — a snowball that means very little at a lame 7% annual return.
I wonder how many 25 year olds are out there in the same boat? Frustrated because they’ve played by the rules, hungry to catch a break, but they just can’t because all the easy money is locked up and protected for the people who already have money. We’ve been responsible and frugal in hopes that we could pull the trigger when the right investment opportunity came around. Well now I’m staring straight at that opportunity. Haallp. Please:) SoFi ?
