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If you’re expecting an inheritance, you may be wondering how long it will take to receive it. You might consider a probate loan if you need funds sooner rather than later. A probate loan, also referred to as an estate loan, allows you to borrow money against a future inheritance. Probate loans can allow you to access money that may be coming to you following the death of a loved one sooner, but there are some potential disadvantages to keep in mind.
You can also talk to a financial advisor about how to handle an inheritance.
Probate Loans Basics
A probate loan is a loan against an inheritance that’s due to you. You’re borrowing money today against assets that you expect to inherit tomorrow. Like other loans, probate loans must be repaid to the lender with interest, and you’ll typically make payments while the estate is still in probate.
Why do probate loans exist? Simply because probate — the legal process by which someone’s estate is settled after death — can take months to complete. In some cases, probate can take years if the deceased person’s heirs bring challenges against the will or otherwise dispute the distribution of assets.
Probate loans allow heirs to benefit from an anticipated inheritance without the lengthy wait. That may be appealing to heirs who need money to pay for medical bills, unexpected expenses or day-to-day living costs.
How Does a Probate Loan Work?
A probate loan is similar in structure to other loans, in that you borrow a lump sum and repay the money in installments. The lender can charge interest on the loan, along with fees. In most cases, the lender will expect the loan to be repaid in full once the borrower receives their inheritance.
The difference between probate loans and other types of loans lies in what’s needed for approval. While a probate loan lender might check an applicant’s credit score or income, the primary concern is the inheritance itself.
Lenders need to be able to verify that the applicant will receive an inheritance and the amount. Once that’s established, the lender can shape the loan terms, including the loan amount, interest rate and repayment schedule.
Loan amounts are usually a percentage of the inheritance. For example, you might be able to borrow up to 75% of what you expect to inherit. The interest rate on a probate loan can vary by lender but it may be typical of what you’d get with a traditional personal loan.
Probate Loan Advantages
The main benefit or advantage of getting a probate loan is that it allows you to tap into any inherited funds you expect to receive early. You don’t have to spend months or even years waiting for probate to conclude to start putting your inheritance to work.
Probate loans can be used to cover virtually any expense you choose, which could make them a good option if you need to pay for things like:
Home repairs or improvements
Higher education expenses
Medical bills
Emergency expenses
You might prefer a probate loan to other loan options, such as a home equity loan or personal loan. While home equity loans can put a lot of cash in your hands, depending on how much equity you have, they require you to use your home as collateral. Personal loans also allow for flexibility, but you might not be able to borrow as much as you could with a probate loan.
Probate Loan Disadvantages
Probate loans can offer convenience, but they can also be problematic for certain borrowers. For instance, having to make monthly payments toward the loan while you’re waiting for probate to wrap up could place an additional strain on your budget.
A probate loan can be an expensive way to borrow if the lender charges a higher interest rate or tacks on steep fees. A general lack of regulation around these loan products means that borrowers must tread carefully and do thorough research in order to find a reputable lender.
Taking out a loan against your inheritance can also be less than ideal if the estate you’ll inherit from is in dispute. For instance, say your parents pass away, leaving everything to you and your two siblings. Your parents had a will that specified you should get 60% of their assets, since you acted as their caretaker in their final years, while your siblings should get 20% each.
Your siblings decide to contest the terms of the will because they believe that your share of the inheritance is unfair. In that case, attempting to take out a probate loan could stoke the fire if the will contest created conflict between the three of you. You can ask a financial advisor about whether they think a probate loan is a good idea.
Probate Loan vs. Probate Advance
When discussing probate loans, you might also hear the term “probate advance” or “probate cash advance”. While they might sound the same, they’re actually two very different ways to borrow against an inheritance.
With a probate loan, you get a lump sum of money from your inheritance. You then make payments back to the lender in installments with interest, with the remaining amount due paid in full once the inheritance is paid out to you. Any leftover inheritance proceeds remaining after the loan is paid are yours to keep.
A probate advance is an agreement in which the lender purchases part of your inheritance. For instance, say you stand to inherit $100,000 from your parents after probate fees and other expenses are paid. You might enter into an advance agreement that allows the lender to purchase 40% of the inheritance.
You get $30,000 now and when probate ends, the advance company collects the $40,000 it purchased, plus the original advance amount and its fee. Any remaining inheritance funds are paid to you. If your inheritance turns out to be less than expected, you wouldn’t have to pay anything back to the advance company.
How to Get a Probate Loan
If you’re interested in getting a probate loan, you can start by searching for lenders that offer them. You typically won’t find probate loans at a bank or credit union. These loans are usually offered by companies that specialize in inheritance financing.
As you’re shopping around for a lender, it’s important to consider:
Loan amounts and how much you might be able to borrow
Repayment terms
Loan interest rates and fees
The lender’s overall reputation
Once you find the right lender, you’ll need to provide them with some information about you and the inheritance. The lender will verify the inheritance amount in order to determine if they can help you. If so, you’ll need to fill out an application for the probate loan.
Assuming that you’re approved, you should have a chance to review the loan terms and details. If you agree to the loan terms, the lender will provide you with funding, which you can start using right away. In the meantime, you’ll need to make payments to the lender as specified by the loan agreement.
The Bottom Line
Probate loans can be an attractive way to borrow against an inheritance, but it’s important to consider the pros and cons. You may appreciate being able to get money today if you need it, but there may be trade-offs you’re making in the long term. If you’re considering a probate loan, it’s a good idea to compare lenders to see what kind of loan terms you might qualify for. It’s also wise to be clear on whether you’re getting a probate loan or a probate advance, as they don’t work the same way.
Estate Planning Tips
Inheriting money can raise questions about how to make the most of those assets. It can be helpful to talk to a financial advisor about the best ways to use an inheritance, which might include paying off debt, funding an early retirement or covering college expenses for your children. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Have you started planning your own estate yet? If not, there’s no time like the present. The most basic element of any estate plan is a last will and testament. If you don’t have a will, you can create one using an online will-making software program. You may want to talk to an estate planning attorney if you have a more complex financial situation or if you think you might need to create a trust along with a will.
Rebecca Lake, CEPF®
Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She’s worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
Save more, spend smarter, and make your money go further
It’s a question that many people have on their minds as they begin to seriously consider their finances: how do I raise my credit score, or how do I fix my credit? Though credit scores may seem shrouded in mystery – how they’re calculated, which ones are used – consumer credit scores tend to follow a few common principles.
In this post, we’re explaining some simple tricks to raise your credit score.
Raising your credit score can take time. After all, credit scores are a measure of how trustworthy of a borrower you’ve been over the years. The good news? You can get started on these credit tips today.
Let’s start with the basics of how to improve your credit score.
How to raise your credit score
Raising your credit score is important, but you might not have a solid idea of what exactly your credit score is. Don’t worry; it’s not as complicated as you might think.
Your credit score is basically a measure of how reliably you pay back money that you’ve borrowed.
There are two main models that credit reporting bureaus use to measure your credit:
FICO
VantageScore
The three bureaus that do the reporting are:
Experian
Equifax
Transunion
Each of these bureaus receives information from various financial institutions you’re involved with, and that information is what determines your credit score.
You’ll generally have a better score if you’ve:
Consistently paid off loans.
Kept your credit usage low.
Stayed on top of all your financial responsibilities.
Both metrics range from 300 to 850, with most scores above 700 considered good to great. If your score is below that — or significantly below that — it can be difficult obtaining a loan at a good rate, or even obtain a loan at all.
Here’s what you can do to boost your score if you do find yourself with a lower rating than you’d like.
1. Ask for (and receive) a credit limit increase
If you’ve been regularly making required payments on your credit card, you may want to try asking the credit card company for a credit limit increase.
What to consider before moving forward:
You wouldn’t necessarily want to do this to finance a purchase you otherwise wouldn’t have been able to make.
But if your monthly balance is relatively steady, you could decrease your utilization rate (a good thing) by increasing your credit limit.
For those who may not know, the credit utilization rate is the amount of credit available to you that you’re actually using. It’s basically your balance divided by your credit limit.So, if you increase your credit limit and keep the balance the same, the utilization rate will be lower. And that can translate into how to improve your credit score.
2. Pay your bills on time
One simple way to get started building solid credit is to start paying bills on time. Among the many different sources of data that major credit reporting bureaus use to assess your creditworthiness, whether you pay for regular expenses on time is pretty important.
It’s not hard to see why: if you have a good track record regularly making rent payments, that probably means it’s more likely that you’ll be able to make regular payments on a loan.
The trick, however, is that you may need to connect your bank account to one of the credit reporting agencies’ services. If you’re curious, call or visit the website for Experian, Transunion, or Equifax to see whether you can have your regular bill payments factored into each of these bureau’s tabulation of your score.
*Pro-tip: if you have a hard time managing your bills:
Make a central list where you itemize each bill you have — rent, water, gas, electric, internet — and what day each one is meant to be paid.
Or, even easier, just download the Mint app, which can remind you about upcoming bills and keep track of the money you spend on bills each month.
3. Show you can handle different kinds of debt
It’s probably not a good idea to run out and take on additional debt for the sake of it, but if you’re in need of a type of loan you haven’t used before (say, an auto loan for a new car, or a personal loan to consolidate credit card debt) consider taking it on and make regular payments on it; you may see a bump in your score.
Lenders want to see you can handle different types of debt, so adding another type of loan and paying it down could have a positive effect on your score.
Here’s an example. If you’ve been paying down student loans (generally, these fall into the “installment loan” category) but don’t yet have a credit card (generally, these fall into the “revolving credit” category), you could see a score increase just by opening that credit card account and paying off your balance regularly.
4. Open a new account and make on-time payments
If you need additional credit, opening a new account and handling it responsibly (making on-time payments on it, not borrowing more than you can afford) can have the effect of increasing your score.
Remember, though, that opening a new account you can’t handle (where you miss payments and/or take on more debt than you can afford) will likely have the opposite effect: a score decrease. So, it’s a good idea to proceed responsibly.
How to keep your credit score high
Once you’ve got your credit score near where you want it, it’s important to do your best to keep it in good standing. By keeping up the habits listed above, you can ensure that your credit stays relatively stable. However, it’s good to note that, in some cases, credit can fluctuate.
Don’t be surprised if you see your credit score dip, then raise up again from time to time.
For example, maybe one month, you use a higher amount of your credit utilization due to a few unforeseen expenses. This isn’t the end of the world, and with continued responsible debt management and credit usage, your score should recover.
In general, however, here’s what you can do to maintain a high credit score once you’ve got it.
1. Close accounts with care and caution
“I have too many credit cards” is something you may have heard someone say or even thought to yourself. And for many, that may be the truth. But having several credit cards, in and of itself, won’t necessarily lower your score.
Though closing credit card accounts or doing a balance transfer may seem like it would boost your credit score because it’s simplifying your life or making things more organized, it can sometimes have the opposite effect. That’s because when you close an account, two things happen:
You lose the entire line of credit you had, which may decrease your utilization rate (see the 1st tip above).
You’ll stop having that account continue factoring into the average age of your accounts.
Typically, scores want to see you’ve held several accounts open and in good standing for a long period of time.
Here’s a big caveat, though: there are still plenty of good reasons to close accounts, credit cards or otherwise:
Maybe you can’t afford the annual fee or the rewards just don’t make it worth it anymore.
Or maybe you’re struggling with credit card debt and want to consolidate it into a personal loan.
The important thing to remember is this: if there’s no good reason to close an account, it’s sometimes wiser to keep it open.
If you do want to close an account, however, don’t worry; the ding to your credit will likely be minor, and it’s likely to recover with time after continued responsible use of the other lines of credit you do still have open.
If you’re considering moving your balance, shop balance transfer credit card deals and personal loan offers from our partners.
2. Stay on top of your personal finances with Mint
Your credit score isjust one metric that helps you measure your personal finances.
You should also keep tabs on other important aspects of your financial well-being, including:
Healthy credit
Well-kept budget.
Solid debt-to-income ratio
Steadily growing savings
Mint allows you to do that. By aggregating your financial information — including everything from investments to upcoming bills — into one convenient dashboard, you can have a bird’s-eye view of your financial health.
Knowing when rent, bill payments, credit card payments, and loan payments are due each month can help you raise your credit score and stay on top of it while also knowing how much you have leftover to budget for other areas.
Remember, there’s no one magic bullet to build your credit score fast. The above credit tips are just some of the ways you might raise your credit score over time and keep it high. However, lasting, meaningful score increases come from showing consistently strong credit habits.
In other words, don’t forget the fundamentals: pay your bills on time, don’t take on more debt than you can afford and be careful about applying for too many accounts over a short period of time.
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The September Refresh: New Numbers, New You
The two worst years of my financial life were 2007 to 2009. Before 2007, our income was low, but our expenses were low, too. We didn’t save much, but we didn’t spend more than we earned, either.
Then we saw our dream house. And we bought it while we still owned our first house. For two years, we had two mortgages. Suddenly, even though our income was slowly increasing, our expenses had skyrocketed. We cut our expenses as much as we could, but you can only cut them so much when you bought a fixer-upper with squirrel holes in the siding, leaking toilets that threatened to fall through the rotten bathroom floors, and desperately needing a new roof. (I guess we have low standards for our dream house!) As if that weren’t painful enough, I was also trying to finish grad school. It was an ugly time, and I was desperate.
Along with our finances, my desperation also manifested itself physically: I gained about 25 pounds, and developed heartburn and other GI difficulties, along with some self-diagnosed depression. I was so tired all the time.
That desperation bled into other areas of my life, too. My relationships suffered. I didn’t love myself, so how could I love others? And, seemingly unrelated, my house was always messy. Not really bad, but definitely substandard compared with the rest of my friends and family.
Sounds terrible, doesn’t it? It was. I remember sitting at my kitchen table one night, thinking that my life was in shambles, and I wasn’t sure it would ever get better.
If your life feels the same right now, I want to share four things that changed our lives — for the better.
1. I repaired my relationships. While I needed to improve my relationships with my friends and family, my marriage had been suffering the most. My husband and I were so stressed that we weren’t taking time to communicate. Even though we both had the same goals, we were on parallel paths, each of us working so hard to get ahead financially. But we weren’t tapping into the synergy of two people who work together.
One December night, when things blew up, we looked at each other and realized we didn’t like what was happening to us. That night, we prioritized our marriage over our finances. Strangely enough, our finances improved, too.
2. I decluttered my life. I had been keeping things because “we will use them some time” and what’s the problem with storing them? When we decided our life had to be as simple as possible while things were so stressful, it was time to say goodbye to the things we weren’t using. Most of the items were actually given away, so while I sold some things, the biggest benefit wasn’t financial…at least, not directly.
But it was more than our possessions. We also evaluated our activities (volunteer, church, community, etc.) and decided, with so much stress and so little time, we had to eliminate some.
I struggle to understand why decluttering made such a difference to us financially. But I think since I had less to clean around and more empty space, it made me less stressed, less overwhelmed, and more likely to have the energy to tackle our challenges. And having a lighter schedule allowed us more time to concentrate on our relationship and getting ourselves out of the financial hole.
It was one step that didn’t cost us much, but made such a huge improvement.
3. I set up a personal escrow account. I had tried budgeting in many ways, but I just didn’t stick with it. As stressed as I felt, it had to be easy. And all the methods I tried weren’t easy enough.
I evaluated our bills and found that we had the most difficulty paying bills that weren’t monthly, bills like our property taxes, house insurance, car insurance, and so on. For instance, our property taxes were always due in July and September, and I knew that. But whenever I got the bill, I would be surprised and wonder where we would get the money to pay for it. And life would be even more stressful while we worked overtime and cut our expenses to try to make the big tax payments.
Thing is, this happened all the time. I would be surprised by our house insurance bill one month. The next month, by our car insurance bill. I’ve never claimed to be the sharpest knife in the drawer, but this was ridiculous. It also wasn’t fun.
So finally I had an idea. I totaled up all our non-monthly bills and divided by 12. The only budgeting I was going to do was save that much per month in a targeted savings account that I will talk about in a minute. When a bill came, I would go to our “yearly expenses” savings account, transfer the money to our checking account, and pay the bill. Proactive, not reactive. It has made my life so much easier with so little effort.
4. I set up targeted savings accounts. Speaking of those targeted savings accounts, I opened up a few savings accounts in July 2009. One of them is our yearly expenses savings account. Others include two vehicle replacement savings, an emergency fund, and our charity account. I didn’t think we could afford to save very much and, at the beginning, I was right. But as things began to improve, I kept bumping up our automatic savings contributions.
An advantage of saving in this way is that it’s been easier to stay motivated. And you know I need help with that. When I see our “New Car Fund” savings account, saving money has a name and a purpose.
The results
These steps had a domino effect on the rest of my life. Today, I am 25 pounds lighter and much less stressed about finances and life, in general. My relationships are healthy, and my life is not in shambles. I am a different person from the desperate gal who sat at my kitchen table a few years ago.
I can’t explain why all four steps made such a difference, but they did. And of course, there were other things that had a huge impact on our improvement as well, like selling the first house, finishing grad school, getting raises, and earning side income.
But the improvement began with four small steps. And I believe these four steps can improve the financial state of anyone, despite their income level.
It feels a little like 2006, but it’s entirely different, or so they say.
A lender by the name of Quontic Bank based out of Astoria, New York (Queens) has been offering its so-called “Lite Doc” loan to homeowners who can’t typically qualify for a mortgage.
The problem comes down to income, which can be a roadblock for many would-be homeowners, even if they have plenty of assets and great credit.
The beauty of Quontic Bank is that it’s designated as a Community Development Financial institution, or CDFI, meaning it is exempt from the Ability-to-Repay rule that generally applies to all home mortgages.
The ATR means underwriters must verify a borrower’s income, assets, job status, and their DTI ratio, among other things.
Because Quontic is a CDFI, which is supposed to generate “economic growth and opportunity” in the “most distressed communities,” it can bypass those stringent rules and make mortgages based on its own risk appetite.
Before you get in a tizzy, note that this new seemingly high-risk loan has some pretty strict underwriting criteria.
What Exactly Is Lite Doc?
Perhaps most important, the Lite Doc loan from Quontic Bank reportedly requires a 40% down payment. Yes, you read that right. A whopping 40%. I don’t know if any mortgage would ever be delinquent if it required a 40% down payment.
Today, home buyers are much more likely to put down 3% than they are 40%…and you know which ones will probably default first.
That removes a ton of the risk, but the Lite Doc loan doesn’t require income documentation if the borrower isn’t self-employed, which might be somewhat worrying.
Instead, they simply need to provide two months bank statements and verification of employment. This compares to standard underwriting protocol that calls for two years of tax returns, recent pay stubs, and so on.
But to lessen the risk even further, the Lite Doc loan also has a minimum FICO score of 700, as opposed to say the 580 minimum score needed to put just 3.5% down with an FHA loan.
That’s not all! The Lite Doc borrower also needs to show 12 months of reserves in the bank, that is, a full year of housing payments on the proposed loan including principal, interest, taxes, and insurance.
So to get this straight, the Lite Doc loan requires a 40% down payment, 700 credit score, 12 months reserves. Oh, and the property has to be your primary residence.
In other words, these loans probably won’t default anytime soon. The only weird part about the program is the fact that the Lite Doc loan is a five-year adjustable-rate mortgage.
That seemingly makes the loans riskier because they could adjust higher after just five years and if this program (or one like it) isn’t around then, these borrowers may be forced to sell if they can’t afford payments or refinance.
So far, just a small handful of these loans have been extended to borrowers in places like Miami and New York, apparently to immigrants who have the dough but not the steady job history required to get a traditional mortgage.
Could This Loan Be Better Than the Ones Major Banks Offer?
This whole thing made me think – are these loans that require less documentation better than the standard QM-compliant offerings being pitched by the likes of Bank of America, Chase, and Wells Fargo?
Just look at the yourFirst Mortgage or the Affordable Loan Solution, both of which require just 3% down payment and a 620 credit score.
That doesn’t sound like a recipe for a quality mortgage, especially if originated at a time when home prices are seen as lofty.
Sure, these borrowers might be able to qualify using full documentation, and the loans feature fixed interest rates, but what if the homeowner loses their job, or takes a pay cut?
The borrower who puts just 3% down doesn’t have much of a cushion (if any) when it comes time to sell to avoid default or foreclosure. The typical home sale may cost 8-10%, so 3% down simply won’t cut it.
Conversely, the borrower with a 60% LTV mortgage will have no trouble selling if they can’t keep up with payments, and without harming the issuing bank (or taxpayers).
I’m not saying we should usher in stated income loans again, but I do question the quality of super-low down payment mortgages coupled with what many would refer to as marginal-to-poor credit scores.
If you have an 810 credit score, congratulations. The score is considered excellent and could help you qualify for loans with more favorable terms or premium rewards credit cards.
Let’s take a closer look at what an 810 credit score means and some different strategies that could help boost your credit score.
What Is a Credit Score?
A credit score is a three-digit number that reflects a consumer’s creditworthiness, or ability to pay back loans in a timely manner. Scores range from 300 to 850. Generally speaking, the higher the credit score, the better you tend to appear to a potential lender.
The two most popular credit scoring models are FICO and VantageScore. To calculate your score, both use credit history information provided by the three major credit bureaus: Experian, TransUnion, and Equifax.
Check your score with SoFi Insights
Track your credit score for free. Sign up and get $10.*
Reasons to Care About Credit Scores
There are several reasons why a good credit score is essential to your financial health. Here are three to keep in mind.
It can increase your chances of being approved for a loan
The higher your credit score, the more likely lenders will approve loan or credit card applications. Whether it’s to purchase a house, buy a car or private student loans, having access to loans can help you achieve some big financial goals. Note that some banks may also run credit checks before issuing you an account.
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You may have access to better loan rates and terms
Lenders are more likely to offer consumers with better credit scores lower interest rates and more favorable terms because they’ve proven they pay back their loans on time. A higher credit score may also get you access to other types of products such as premium rewards credit cards.
You could save money
When you move into a new home, the utility company or your landlord may check your credit score to determine how much of a security deposit you’ll need to put down. Typically, the lower your score, the higher your deposit. Though the money is often refundable, it’s usually held in a third-party account that you won’t have access to. Potential employers may also run a credit check before you’re offered a job.
Recommended: Everything About Tri-Merge Credit Reports and How They Work
Is an 810 Credit Score Considered Good or Bad?
An 810 credit score is considered very good. In fact, just 21% of consumers in the U.S. have a credit score of 800 or higher. By comparison, the national average credit score is 714, according to Experian.
What Does an 810 Credit Score Mean?
Having an 810 credit score means you’ve proven through your credit behavior that you are likely to pay back loans on time. As mentioned above, a score of 800 or above places you in the top tier of consumers.
You are also considered to be in the “exceptional” range for your FICO score and “superprime” for your VantageScore. This means lenders are more likely to approve you for loans and offer you access to products such as loans with lower interest rates and premium credit cards. Landlords and utility companies may also ask for a lower security deposit amount (if at all).
How to Build Credit
Looking to build your credit? You have several avenues to explore. Below are a few to consider. Note that there’s no one-size-fits-all solution, so it’s a good idea to research all the options available to you.
Use a Credit Card
Even if you’re just starting out in your career or only have fair credit, you may still be able to be approved for a credit card. For instance, you can open a credit card that’s specifically for college students. Or you may want to consider a secured credit card, where you pay a refundable security deposit that acts as your credit line.
Whatever purchases and payments you make on the card are reported to the three major credit bureaus. This in turn helps to establish your credit history.
Become an Authorized User
An authorized user means that your name will be put on someone else’s credit card account. You can use the credit card much like the primary cardholder can, though this person is ultimately responsible for ensuring the minimum payments are paid on time.
If the primary cardholder has a good credit score, then their positive credit history may be added to yours.
Add Monthly Bills to Your Credit Report
Some free credit monitoring services will report your utility and rent payments to your credit report. Doing so can help build your credit history. Even if there is a small fee involved, it may be worth using for a few months, depending on your financial situation.
Recommended: How to Read and Understand Your Credit Report
Take Out a Credit Builder Loan
Credit builder loans are designed to help borrowers who are looking to build their credit. They’re similar to a personal loan, except you don’t initially receive the loan proceeds. Instead, the money will be held in a separate savings account until you pay off the loan. Meanwhile, your payment activity will be reported to the credit bureaus.
How Long Does It Take to Build Credit?
It can take several months for you to establish and build credit. This is because credit scoring models need enough information from your credit history in order to assess your creditworthiness.
As you work on building your credit, do your best to practice good financial habits, such as making on-time payments.
Credit Score Tips
Even if you have an excellent credit score, it’s a good idea to keep up good credit behavior. This includes:
• Consistently making on-time payments
• Keeping your credit utilization, or the percentage of the available limit you’re using on revolving credit accounts, as low as possible
• Avoiding applying for too many new loan or credit accounts at once
• Keeping your longest credit card or loan account open
• Regularly monitoring your credit score
• Checking your credit history and immediately disputing any errors you find
How to Check Your Credit Score
Wondering how to find out your credit score for free? You have several options. The first is your credit card statement. Many credit card issuers provide customers with a complimentary look at their score. To find it, you may need to log into your account or check your monthly credit card statement.
Another option is to use credit score monitoring tools; some are free, others require a payment. Before opening an account, compare each tool to see which one best serves your needs.
The Takeaway
It’s good news if you have an 810 credit score and a sign that you have a track record of paying back your loans. A good score may help improve your access to loans with better terms or premium or luxury credit cards. If you want to improve your score — or just maintain it — you can try practicing good financial habits, like consistently making on-time payments, keeping tabs on your credit score, and disputing any errors.
If you need help managing your spending and saving, consider using a money tracker app. The SoFi Insights app connects all of your accounts in one convenient dashboard. From there, you can see all of your balances, spending breakdowns, and credit score monitoring, plus you can get other valuable financial insights.
Stay up to date on your finances by seeing exactly how your money comes and goes.
FAQ
What is a decent credit score for a 23-year-old?
Chances are, at 23 you’re probably still building your credit. According to Experian data, the average credit score for people aged 18 to 25 is 679. If yours is higher, then it’s considered above average.
What is the highest credit score possible in 2023?
The highest credit score you can achieve is 850 for both FICO and VantageScore scoring models.
Is a credit score of 800 good at age 23?
Whether you’re 23 or not, an 800 credit score is considered excellent.
Photo credit: iStock/Makhbubakhon Ismatova
SoFi’s Insights tool offers users the ability to connect both in-house accounts and external accounts using Plaid, Inc’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score provided to you is a Vantage Score® based on TransUnion™ (the “Processing Agent”) data. *Terms and conditions apply. (Must click on the link to be eligible.) This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the Rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed into SoFi accounts such as cash in SoFi Checking and Savings or loan balances, Stock Bits, fractional shares and cryptocurrency subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances. Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners. Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website . Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit. SORL0423008
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Each year as you await your tax refund, you face the same question – what to do with that money once it arrives? For some, the money immediately goes to cover basic needs, but for others, the money goes to far less-essential items.
According to a 2020 survey by Self Financial, 44% of respondents said not getting a tax refund this year would completely derail their budget for the rest of the year.
So how do you use your tax refund to plan ahead, build your wealth, financial health, and ultimately, your credit?
Here are 5 ways to put your tax refund to work to build your credit.
But first…
Why use your tax refund for credit-building?
Maybe you’re itching to spend your tax refund to treat yourself. While there’s nothing wrong with using a bit of that money for fun, tax refunds are a great opportunity to get ahead with your finances too.
But why, of all things, focus on your credit?
First, bad credit could cost you thousands of dollars more over your lifetime, since you often get charged higher interest rates (if you can get approved at all). Your credit can also impact your ability to rent an apartment, qualify for certain jobs, or even get a cell phone.
Good credit, however, creates a financial safety net to fall back on if you need it. If you have good credit, you may have an easier time qualifying for personal loans, credit cards, or other credit products if you need to borrow money, often at a lower rate.
If you don’t have an emergency savings fund, credit may be your only other option to lean on if you face job loss, an unexpected medical emergency, etc.
You have to build credit before you need it though. Otherwise, you might not be able to access it when you actually do need it.
5 ways to build credit using your tax refund
Once you have your tax refund in hand, here are some ways you can put it to work to help your financial health.
1. Pay down debt
While paying down your mortgage or other personal loans may help your credit score, it may be a good idea to focus on higher-interest, more expensive consumer debt (like credit card debt) first.
Not only could paying down this higher-interest debt save you the most money in the long run, but it could also have a bigger impact on your credit score. That’s because credit usage, or how much of your available credit you use at any given time, counts for 30% of your FICO® credit score.
While installment loan usage (like personal loans, car loans, or home loans) does count somewhat towards this factor in your credit score, revolving account balances (like credit cards or HELOCs) count more, according to credit bureau expert Barry Paperno.
That doesn’t mean you have to pay your credit card debt off completely to see benefits to your credit score. Even paying your balance down 5-10% may have a positive impact.
According to credit scoring agency FICO, people with the highest credit scores tend to have credit utilization between 6-10% on their revolving credit accounts. While that’s a great goal to aim for, start with paying down what you can, no matter how small that amount may seem at first. Small wins can add up to big ones over time.
Aside from credit utilization, the only other factor that impacts your credit score more is your payment history. Which brings me to my next point…
2. Get your current accounts in good standing
If you have late payments or missed payments on your current credit accounts, make up those payments if you can. While many lenders report a late payment to the credit bureaus if it’s more than 15 days late, how late your payments are can impact your credit score in different ways. A payment that is 30 days late affects your score differently than one that is 90 days late.
For example, according to one FICO score simulation, if you have a 793 credit score and miss a payment by 30 days, your score could drop 60-80 points. In that same situation, if you missed a payment by 90 days, your score could drop 100 points or more.
So the sooner you catch up on a late payment, the better. Besides, making those payments could keep more late fees from adding up.
While catching up on payments may not undo the damage of a late or missed payment on your credit (it can take years for just one late payment to fall off your credit report), it could prevent any more damage from being done.
If the late payments were on property, or loans that were secured by property, like a home loan or car loan, catching up on payments could also prevent you from losing your home or car.
3. Open a Credit Builder Account
This next one is for people who either have no credit history, a limited credit history, or need to rebuild credit after financial hardship such as bankruptcy, foreclosure, or identity theft, to name a few examples.
Unlike a traditional personal loan, credit builder loans don’t give you the money upfront.
Instead, the lender holds the loan amount in a bank account. Each month, you pay into this account and the lender reports your payment history to the credit bureaus, which helps you build credit history.
Once you pay off the loan amount, the money inside the account comes back to you, minus the interest charged on the loan. In other words, these loans give you the opportunity to put some money away for savings while you build your credit.
If you have trouble gaining access to other credit products or want to build credit while you build some savings, a Credit Builder Account could be the right option for you.
4. Use it as a deposit on a secured card
For many, a secured credit card may be a good entry point for accessing credit cards. A secured card works just like a regular credit card, except you put down a security deposit that is usually equal to your credit limit.
For example, you may have a secured card with a $100 credit limit and a $100 security deposit. Like a deposit for utilities, a secured card deposit is used to cover your bill if you don’t pay back what you owe.
Some companies (like Self Financial) provide an option for you to build your way slowly towards a secured card through a Credit Builder Account, no extra deposit or hard inquiry needed. Bonus: Self doesn’t deny you if you have a history of bankruptcy or foreclosure, unlike some other credit card issuers.
There are many different secured credit cards to choose from, so shop around to decide which one is right for you.
5. Work with a credit counselor
Not sure where to start when it comes to your credit? Or what product might work best for you? You may want to use some of your tax refund to hire a qualified professional to help you come up with a credit action plan.
Here are a few reputable places to start searching for a credit or financial counselor:
National Foundation for Credit Counseling (NFCC). This nonprofit provides financial counseling services through their member organizations across the US. Visit their website to connect with free or low-cost help in your area.
Association for Financial Counseling and Planning Education (AFCPE). AFCPE has over 3,200 certified financial counselors, planners, educators, and researchers around the world. You can find local or virtual financial counseling through their online tool.
Operation Hope. Operation Hope is a national nonprofit that provides financial coaches to help people “develop customized action plans around building their own businesses, raising their credit scores, buying homes, or simply making better decisions with the money they have.” Their website also has tons of free resources about financial basics.
These organizations provide access to qualified financial counselors who can help you create plans that align with your financial goals, whether that means building your credit, paying down debt, budgeting, or working towards buying a house, to name a few examples.
Depending on your current income and situation, you may also qualify for no-cost or low-cost help, since many financial counselors offer a sliding scale based on financial need.
Be careful when browsing for professional help with your credit though, especially if you search for credit repair. While there are some good players in the space, you have to be really careful to pick the right one. The Federal Trade Commission provides some guidelines to help you find legitimate credit repair help, which you can view here.
Bonus: Build an emergency savings
Okay, so this one isn’t exactly credit-specific, but having an emergency savings fund could help reduce the amount you need to borrow if you ever did need to lean on credit during times of financial hardship.
Research from SaverLife shows that even just $100-$200 in savings could mean the difference between keeping your housing during hard times or having your utilities cut off.
According to the IRS, the average tax refund in 2020 was $2,741, which for people who make about $30,000 is roughly one month’s salary – a pretty healthy cushion if you lose your job and need time to find something new.
The good news is, there are tools that could help you build both your credit and some savings at the same time.
Bottom line
While credit may not usually be top-of-mind when you get a sudden rush of cash, it’s a key building block for your financial health, and can help open doors to your future.
So if you have a little extra money, whether it’s thanks to a tax refund, stimulus check, bonus, raise, inheritance, or even just finding $20 in an old pair of pants, put that money to work for your future self.
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Homes are bought every day around the country using the VA loan. Even in the current housing shortage, veterans and active duty military members are still finding homes to purchase.
Of course, some areas are going to be easier to buy a home in than others, and some places have more homes available for people to buy.
But where are veterans buying homes?
Fortunately, the VA keeps track of all mortgages processed through their system. A recent data series was released by the VA showing the counties with the most VA loans, IRRRLs and cash-out refinances. It sheds a little light on where the most popular spots for veterans to buy a home are.
Click to check today’s VA rates.
The most popular spots for veterans to buy a home
The VA took data from all 3,076 counties that process some type of VA mortgage product between 10/01/2017 – 5/31/2018. In that period (what is just about half a year), the VA closed a total of 411,282 loans. Of those, 236,501 were purchase loans. That means that veterans are on pace to purchase over 500,000 homes using the VA loan in a one-year period.
The VA breaks it down further, showing how many of each mortgage product were used in each county. Here were the top 10 for purchase loans:
Maricopa, Arizona – 4,850
Bexar, Texas – 3,899
El Paso, Colorado – 3,822
San Diego, California – 3,792
Clark, Nevada – 3,297
Riverside, California – 2,591
Pierce, Washington – 2,083
Hillsborough, Florida – 2,018
Harris, Texas – 1,981
Tarrant, Texas – 1,839
Based on the data, veterans are mostly moving west or to Texas, with three of the top 10 counties being in Texas. Aside from that, the west coast (California and Washington) has three as well, with Nevada, Arizona and Colorado being popular picks.
Unsurprisingly, Florida was also a popular spot for veterans to buy a home. Not only is Florida a traditional retirement spot, but it also has affordable housing relative to some of the other counties on this list.
What’s interesting is that a lot of veterans are moving to areas with big cities. San Diego is a larger city, and Clark, Nevada is home to Las Vegas.
Cash-out refinance loans prove popular
Along with purchase loans, the VA offers two types of refinances: the IRRRL and the cash-out refinance. Of the two, the cash-out refinance proved to be much more popular with 112,594 refinances closing during the same period, as compared to 62,187 for IRRRL.
Cash-out refinances are different from IRRRL for a few reasons. First, veteran homeowners are allowed to take cash out of their equity and use it for whatever they want – be it a renovation, a new boat or even a vacation.
Second, cash-out refinances are available to all veterans, even if they didn’t use a VA loan to purchase their house.
Also, many veterans that have lived in their house for over 10 years may be able to reduce their mortgage rate as well, saving on monthly payments. There are a variety of reasons that veterans get refinances, but cash-out proves to be the most popular.
To ask the Prime Minister (a) how many Singapore homeowners refinanced their home mortgage loans in the past 12 months; (b) what is the average increase in monthly home mortgage payments (i) in absolute terms (ii) as a percentage of monthly income; and (c) whether the Government is considering any measures to help Singapore homeowners with the sudden spike in interest rates.
Answer by Mr Tharman Shanmugaratnam, Senior Minister and Minister in charge of MAS:
1. Close to 27,000 homeowners with a mortgage from financial institutions (FIs) refinanced their mortgages in the 12 months from March 2022 to February 2023. These refinanced mortgages account for 6% of the total number of outstanding mortgage loans.
2. MAS has estimated that the increase in mortgage payments for these borrowers was approximately $240 on average, or about 2% of their monthly income. The average monthly income of the 27,000 homeowners who refinanced their loans had increased by about 10% over the last 3 years. This would have helped cushion the increase in their mortgage payments.
3. Most borrowers have been generally prudent and hence are able to cope with the rise in mortgage payments. MAS’ move in September 2022 to raise the interest rate used to calculate the total debt servicing ratio has also helped to encourage prudent borrowing.
4. MAS however encourages the small number of borrowers who face repayment difficulties to approach their lenders early. For HDB homeowners facing difficulties, government agencies have implemented various measures to help them service their housing loans. Member may wish to refer to the written answer by the Minister for National Development to a similar question posed in March this year for more details on these measures, and the recent speech by the Minister for Finance at the Debate on President’s Address for more information on measures for Singaporeans who need support.
I am a big believer in making big goals and one of my goals is to purchase 100 rental properties by 2023. I have been a real estate agent and investor for more than 15 years, and I love the income my rental properties provide. Buying 100 rental properties will allow me to retire with more than enough money to reach my current dreams and goals. I do not want to buy 100 properties quickly without concern for the returns or risk. It takes a lot of money, time, and effort to buy 100 properties in the right way. I only buy houses that are well below market value and have great cash flow.
I first wrote this article in 2013, but have tried to update it frequently. I now have 20 rentals that make me over $10,000 a month after expenses. I am way behind on my goal, but many things happened that I could not have predicted like our housing market going crazy. I have bought commercial properties in the last few years instead of residential because they have been better money makers in my market.
Why I made a more challenging goal
In 2010, my original goal was to buy 30 rental properties in ten years. I based that goal on what I thought I could realistically achieve when I started buying rentals. A couple of years ago, I realized my goal was too easy because I knew I could buy 30 houses in ten years. I had given myself no room for improvement in my investing strategies or real estate business! At the start of 2013, I reworked all my goals including my rental property purchase schedule. My new goal was to buy 100 rental properties by January 2023 because it challenged me and would make me work hard. I had no idea when I first made this goal how I could buy 100 rental properties, but that is why we make big goals; to challenge us to do more and to change the way we do things.
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Why real estate?
I want to buy 100 rental properties because of the income and freedom that 100 houses will give me. I make over 15 percent cash on cash returns on my rentals because I purchase them below market value with great rent to value ratios. If I can buy 100 rental properties with the current cash flow requirements I have, I will make a lot of money. According to my calculations, I will be making over $900,000 a year in cash flow, have at least 60 houses paid off, and have over 11 million in equity in my rental properties. Those figures are not adjusted for inflation and assume no appreciation or rent increases. That kind of income should allow me to afford whatever my family and I want and allow us to do whatever we like. We only live once and I want to get everything that I can out of life.
The first part of this article discusses the philosophy behind buying 100 rental properties, why it is important to have big goals, and why it is important to think big. The second half of the article discusses the numbers and a detailed purchase schedule.
Is it possible to purchase 100 rental properties?
To be completely honest, I do not know how I am going to buy 100 rental properties by January 2023. I do not make nearly enough money to buy 9 or 10 houses a year. I have barely been able to buy three houses a year. I bought my first rental property in December 2010, and I started my rental property purchase goal on that day. I should have had three by December 2011, six by December 2012, and nine by December 2013. I started out very slow buying only one rental in my first year. I have picked up speed and as of March 2016, I own 16 rentals, still behind where I had hoped to be. That does not mean I will not reach my goal. The reason I have not purchased as many rentals lately is they are much harder to find in our market. Our prices have increased significantly making it harder to cash flow. I have been buying many more fix and flips since I cannot find rentals.
Why do I think I can purchase 100 rental properties by January 2023 if I am so far away? After reading and listening to books on how to become wealthy I started reworking my life goals. A couple of ideas are repeated in books and audio tapes beginning with Think and Grow Rich by Napoleon Hill. Think and Grow Rich was published in the early 20th century after Napoleon Hill followed Andrew Carnegie for decades. Carnegie was one of the richest men in the history of the world and wanted someone to study rich people in the world and write a book about how and why they became rich. Because Carnegie was one of the richest people in the world, he was able to grant Hill access to most of the world’s wealthiest people. Think and Grow Rich is now known as one of the first self-help books, and many of its basic ideas are still taught today by the world’s most famous life coaches and teachers.
How will my attitude affect my success?
Being positive is a theme that is repeated in every self-help book and audio recording I have ever listened too. I am a strong believer that our attitude has a huge influence on our success in life. The books range from slightly crazy to extremely scientific reasons for how being positive can greatly affect the success we have in our lives. You may have heard of the law of attraction, which states that the universe will return to us whatever we put out. If we are positive and happy, we will get positive and happy things back. If we are negative and sad, negative and sad things will come our way. I am a very logical and scientific person and was not sold on this idea right away. I had to know why this would happen. How could being positive magically bring positive things into our lives?
I started doing research on the brain and on how the law of attraction theory worked. I found out that it is not all magic, there are scientific reasons why the law of attraction works. It is based on the subconscious part of our brain and on how it operates our bodies. We know that our conscious mind is only a fraction of what our brain is responsible for. Our subconscious mind is constantly working to keep us alive by telling our heart, lungs, muscles and the rest of our bodies what to do. Most of our movements and actions are performed by our subconscious, not our conscious mind. We do not have to think about walking, talking, driving, writing, or even most of our daily tasks. By doing those things repeatedly, we have programmed our minds on how to do them.
Tying this back into the positive thinking idea, if we are always thinking positively, our subconscious will think positively, too. If our subconscious thinks we are happy all the time, it will do what it can to make us happy. Why do we care what our subconscious thinks? It is much smarter than our conscious mind. The subconscious is responsible for handling millions of tasks at once, while our conscious mind can only handle a handful of ideas at once. If we let our subconscious know what we want it will help guide our lives and help us to get what we want. Whether it is love, happiness, money, or material items our subconscious has much more power than we think. The theory also states that you must think about what you want, not what you do not want because our subconscious cannot tell the difference. If you are constantly thinking about not having money, then your subconscious will do its best to make that come true as well. If you are constantly thinking of not getting sick, our subconscious will do its best to get you sick. Think of being healthy, think of being rich, and think of the good things, not the negatives.
Why such a big goal?
Almost every self-help book will tell you goals are extremely important. Without goals, we have no direction, no path, and no idea of what we really want in life. There are varying ideas of how our goals should be constructed. Some say we just need broad wide-open goals such as being as happy as possible all the time to make whatever is best for you to come to you. Others say to be as specific and detailed as possible with your goals, break your goals into smaller goals, and then have a period for when those goals will be accomplished. Eventually, you will have a detailed blueprint for how you will get to where you need to go.
Some people say you need realistic goals and others say you need outrageous goals. As you have probably guessed, I like outrageous goals! The reason I like outrageous goals is that they are challenging! If I know that I can reach a goal and if I know exactly how to reach it, where is the motivation for me to push myself? I want goals that make me think and reach for new ideas and systems. I have no idea what opportunities or challenges will face me in the future, so why should I limit my future goals to what I can do now? I may have a huge increase in income or find a new system that allows me to buy houses cheaper. I have such a lofty goal because I have no idea what could happen.
Who will I need help from?
Many of the self-help books also talk about how we all need friends, co-workers, or acquaintances to help us reach our potential. Some use the term mastermind to describe groups of like-minded people who meet to help each other succeed by offering advice and motivation. The idea is that the more people to brainstorm ideas, questions, problems, etc. the better the chance a great idea or solution to a problem will come about. I do not have a mastermind group (this has since changed), but I have recruited my best friend to work with me and learn the real estate business. He was a top-level manager in the corporate world and left his six-figure salary behind to learn real estate from me. I benefit by having a new mind to bounce ideas off and have more help in the office. He benefits by getting out of the corporate grind and learning how to be truly wealthy. He also has a flexible schedule and he is not stuck behind a desk all day.
Why focus is so important
The self-help teachers also say how important it is to focus on one task or goal. All the greats had something in their mind that they really wanted. They did not let anything stop them until they got what they wanted or died trying. I have always thought of myself as being able to multitask, a jack-of-all-trades type of person. So far, it had worked out well, but I know I can do better. I know there are things I can improve in my business to make it run better and make more money. I have always thought that I knew everything about finding good deals in real estate. After starting this blog, I have realized that there is a whole world I have been missing in direct marketing to off-market properties. Instead of trying to manage five different sources of income myself, I need to delegate less important tasks to my staff and focus on the real moneymakers. If I can focus intently on a couple different areas of my work instead of just skimming over 50, I know I can improve my numbers significantly.
Why visualizing the goal being achieved is important
Many great athletes will tell you how important visualization is to succeed in sports. Great golfers visualize exactly how their shot will look before they hit it. Basketball players repeatedly visualize hitting the game-winning shot. The wealth teachers are all huge supporters of visualization. They say visualization will give your subconscious a clear picture of what you want and then your subconscious will do its best to make it happen. If you want to change your life, start visualizing how it should be every day. Better yet, go see, touch, and smell the things you want. Test-drive the car you always wanted, look at your dream home, or immerse yourself with the things you want and your subconscious will get to work. I wrote a ten-year dream story on exactly how I wanted my life to be. I described a beautiful house and in three months, I bought that house. I was not even planning to move and in no way thought I could afford a house like the one I have now, but it became a reality.
Using all I have learned to reach my goals
Based on the ideas I have just discussed, I think I have a good chance of reaching 100 rental properties. I still do not know exactly how it will happen, but I know it will or I will find a better and more challenging goal. I have to train my subconscious to help me reach my goal. I have to be positive all the time. I have to think about my goals constantly and break it down into manageable pieces. I must have help and I have to focus more intently on my important goals. I also have to visualize myself already achieving my goals and having everything I want. Even if not all of this makes me rich, worst-case scenario, I am a positive, determined, focused person who knows exactly what he wants.
Breaking down big goals makes them more realistic
I have broken down other goals in my life, but I have yet to break down a goal this big! I am going to work through the goal while writing the blog and see where I end up in 9.5 years. I wanted to write this article to help convince myself that it is possible to buy 100 properties. The first part of this article was all about my mindset. Now, let us get down to the numbers. Here is a year-by-year breakdown of how I plan to purchase 100 rental properties.
Year one
With my current income, I can purchase three rental properties a year and I have purchased that many in the last three years. I should be able to do a cash-out refinance on at least one rental property in 2014 and get enough money to buy another property. I am also counting on my new attitude and work ideas to create enough extra income to purchase one more rental property. I also just acquired a HELOC on my personal residence for $60,000. I think that will allow me to purchase one more rental. New goal for 2014 is to purchase six long-term rentals.
I will have 15 houses with about $9,400 in monthly cash flow. That is $112,800 a year all going toward paying off mortgages on my properties. I will have paid off one house at the beginning of 2014 and will pay off one and a half more in 2014.
Year two
In 2015, with income and savings, I should be able to purchase four properties. I should be able to do another cash-out refinance and buy another rental property as well. I also believe my continuous improvements will allow more increases in income, through either listing or flipping houses. The increased income will allow me to add another rental and HELOC another as well. I am hoping the addition of my friend beginning to work with me will bring in more income from his real estate activities, which will allow another purchase. My goal for 2015 is to purchase nine rentals.
I will have 24 houses with about $15,200 in monthly cash flow. That is $182,400 a year all going toward paying off mortgages. I will pay off the other half of one property and two more rentals in year two and will have four properties paid off.
Year three
I believe I will increase my income and savings enough to be able to buy five rentals. I will have 24 rentals and I should be able to refinance at least two of those properties. That will allow two more purchases and the HELOC should add the flexibility to add another rental. I am still planning to add to my income every year with increased business. This year I see a big jump in income with my friend being around for his third year and our new marketing and listing techniques taking off. I see three more rental properties being purchased from new income. My goal for 2016 is to purchase 11 rentals.
I will have 35 houses with about with about $22,200 in monthly cash flow. That is $266,400 a year all going to pay off mortgages. I will pay off four and a half more properties for a total of eight and a half properties paid off.
Year four
From my current income, I will be able to buy eight rental properties. I will continue to refinance two properties a year, which will allow at least two more purchases. I am also going to use the HELOC to buy another, and I am still planning to increase my income. I am going to stay conservative and assume enough income to buy one more property this year. My goal for 2017 is to purchase 12 rental properties.
I will have 47 rental properties at this point with about $31,400 in monthly cash flow. That makes $376,800 a year all going to mortgage payoff! I will pay off the half of a mortgage left over from 2016 and five more properties in 2017, making 14 properties paid off.
Year five
From my current income, I will be able to purchase nine rental properties. I will refinance two more properties and use the proceeds to buy two more rentals. I may not have enough money in the HELOC this year so I will not count on that, but I will count on my income increasing enough to purchase one more rental. My goal for 2018 is to purchase 12 rental properties. Note: To buy this many properties I will need about $300,000 in cash for repairs and down payments.
I will have 59 rental properties with a monthly cash flow of $41,000. That makes $492,000 a year all going to mortgage payoff. I will pay off seven and a half more properties in 2018 making 21.5 properties paid off.
Year six
From my current income, I will be able to purchase ten rental properties. I will refinance two more properties and use those proceeds to buy three more rentals. With inflation and appreciation, I should be able to refinance the properties for more money than in previous years. I will not use increased income to buy another property. If my income increases, I will use it for fun stuff such as vacations or cars! My goal for 2019 is to buy 13 rental properties.
I will have 72 rental properties with a monthly cash flow of $51,600. That is $619,200 going toward mortgage payoff. I will pay off the half mortgage from 2018 and nine more properties in 2019 making 31 properties paid off.
Year seven
From my current income, I will be able to buy ten rental properties. I will refinance two more properties and use that money to buy three more rentals. I will not count on any more raises in income since I do not need it at this point. My goal for 2020 is to purchase 13 rental properties.
I will have 85 rental properties with a monthly cash flow of $63,400. That is $760,800 a year going towards mortgage payoff. I will pay off 11 more properties in 2020 making 42 properties paid off.
Year eight
From my current income, I will be able to buy ten rental properties. I will refinance two more properties again and purchase three more rentals with that money. My goal for 2021 is to purchase 13 rental properties.
I will have 98 rental properties with a monthly cash flow of 75,600. I will have $907,200 a year going towards mortgage payoff. I will pay off 14 more properties in 2021 making 56 houses paid off.
Year nine
I only need to buy two more properties to reach my goal! I made it ahead of schedule and when I started writing this article, I was not sure how I would be able to reach 100 properties by 2023. I do not need to refinance any properties at this point and I can start using my income any way I want or I could retire!
I will have 100 rental properties with a monthly income of $82,400. I will have $988,800 a year going to whatever I want it to go to at this point. I can stop paying down mortgages if I want to or I could keep buying properties if I get bored. I came really close to the figures I estimated before writing this article. Falling just short of one million in income from my rental properties (which was more than I thought) and just shy of 60 properties paid off.
Assumptions in my plan to purchase 100 rental properties
You may be wondering how I came up with my figures. To be honest I used very basic figures to make things easy on myself.
I assumed $600 in monthly cash flow per property. I am making between $500 and $700 per property now.
I assumed each mortgage that I paid off would increase monthly cash flow by $400.
I do not assume any inflation because that would cause the numbers to be much more difficult to figure!
I assume my portfolio lender will continue to lend on as many properties as I want. I will have 43 houses financed at one time and then those will start to decrease as I pay them off.
I assume I can continue to do cash-out refinances with my portfolio lenders.
I assume interest rates will not increase significantly.
I assume rental rates will not go up.
Additional benefits of rental properties that my income projections did not account for
Rental properties have great tax advantages, which I discuss here. Every rental property can be depreciated, which will save me thousands in taxes each year. I assume my rental properties will not appreciate, but they have already seen huge appreciation in the last two years, increasing my net worth by $600,000. I assume rents will not increase, but my rents have increased as well over the last couple of years. I rented my first rental property for $1,050 a month in 2011 and it now rents for $1,300 a month. I will most likely be better off than my projections indicate if I can buy 100 rental properties.
Potential roadblocks
These are many assumptions and one or more of them may not work out as I plan. However, other factors may help me do even better than I planned or balance out any roadblocks I run into.
New ways to find properties: I am going to start direct marketing to off-market owners. This should allow me to buy properties even further below market, and I may even find a few owners who will finance down payments. I recently realized I could use my IRA to buy properties!
Private money: One of my goals is to find new sources of private money that will allow me to finance more repairs and down payments. This would allow me to put less money into properties and buy them faster.
New income sources: I have no idea what the future holds as far as opportunities and money. I may find a gold mine that will allow me to buy properties for cash and not have to worry about financing at all!
I assume I will not do anything with the houses I pay off free and clear, but if needed to I could easily get a line of credit or refinance one of these houses to bring in enough money to buy a few new properties.
What will I do in 2023 if I reach my goal?
I have many things I would love to do if I did not have to work. Here is a list of a few of the things I would love to do with one million dollars a year coming in and no job!
Start a pizza restaurant
Start a car dealership
Travel the world with my family
Donate time and money to those less fortunate
Play in the World Series of Poker
Attend a Super Bowl
Play golf all over the world
Buy a Lamborghini Diablo (done!)
Buy a beach house
Help teach others about real estate (doing my best now)
I have a much longer goal list than what is above and I hope to do many of these things before 2023. I know I will have time, money, and the freedom to do these things at that time.
Conclusion
I plan to purchase 100 rental properties by January 2023, but I realize that may not happen. If something better comes along to change my plan, I am ready to embrace fully any new opportunities.
Update on my plan 2014
I have already changed focus slightly in 2014 to fix and flipping over buying long-term rentals. I have done this for two reasons:
There have been more fix and flip opportunities than rental opportunities in my market.
The money from flipping will help me buy more rentals; rentals take a great deal of cash.
It seemed crazy to think I could increase my income enough to buy this many properties when I first made this goal in 2013. However now that it is late 2014, I can easily see myself making more than enough money to buy 100 rental properties and have plenty of money left over to do other fun activities. At some point, I may decide it is better to buy larger multifamily buildings than single-family homes, but for now, I see more opportunity in the single-family market in my area than multifamily.
Update on my plan 2016
The market has gotten even crazier in Colorado. Houses I was buying for $100,000 are now at least $160,000 or more. The rents have not increased nearly as much as house values have increased. It is very hard to find rentals and I have stopped buying them in Colorado. I have started to look at other states including Florida for a new market.
I also stopped paying off my mortgages early. I decided my money was better used to buy as many homes as I could. It has paid off buying 16 rentals in the last five years since our market has gone up so much. I have invested about $300,000 in buying my houses and my equity is close to $1.5 million. I have even decided to sell some of my rentals and re-invest that capital into more properties in another market.
I wrote this goal out in 2013 and updated it in 2014, and it is now 2016. I think goals are vitally important to achieving what you want in life. Will I reach this goal? I do not know. If I don’t reach it, will I be a failure? No! I am already way ahead of where I would have been without this goal. That is the point of goals, to motivate you to go farther than you think you can.
Update on my plan 2018
Right now it is the middle of 2018 and I have not come close to where I should be with my goal. Am I disappointed? No. Many things have happened that are out of my control; good and bad. The biggest challenge I have faced is the housing market in Colorado. Prices have almost tripled since I made this goal. Some of the rentals I bought for less than $100,000 7 years ago are worth close to or more than $300,000 today. I can no longer cash flow on residential rental properties in my market. I have thought about buying rentals in Florida, but in the end, decided to buy commercial properties here. I even bought a 68,000 square foot strip mall this year. I am buying rentals worth a lot of money, but not as many as my plan called for. Sometimes we have to change our plans based on changes in our lives or markets.
I have also focussed more on flips because I can make money with those in my market. I flipped 26 houses last year!
Wells Fargo reportedly offered a struggling homeowner a loan modification that resulted in just $2 off his monthly mortgage payment, according to an ABC news affiliate.
The Independence, Ohio-based homeowner, Mike Elewski, apparently got into trouble back in 2009 when the ongoing recession began to affect his business.
In August of 2009, he asked the San Francisco-based bank and mortgage lender to grant him a loan modification, but bank representatives said they only negotiate with homeowners behind on mortgage payments.
As a result, Elewski stopped making his mortgage payments, and before long, faced foreclosure.
Eventually a judge ordered mediation between him and Wells Fargo, and after mountains of paperwork and thousands in attorney fees, the bank offered him a modification.
Unfortunately, the loan mod resulted in just $2 off his regular mortgage payment, meaning foreclosure is likely imminent.
But alas, because the story is gaining steam, Wells will likely have to step in and give the man a better deal.
This seems to be the trend nowadays, make noise and get help.
A Wells spokesman did tell the publication it would never tell customers to miss payments, and noted that it was continuing to work with the customer to identify solutions that would allow him to retain his home.
Per the article, the Ohio attorney general’s office has already received 450 complaints involving mortgages since the beginning of the year.