Do I need to earn more for each Nomad™ home that I buy?
Maybe. It really depends on the properties you’re buying.
In some cases you will need to earn more each year as you buy additional Nomad™ properties in year 2 on. In other cases the income you’re receiving from the previous Nomad™ properties you’ve purchased and are renting out will actually help you qualify for the next purchases.
So, what really determines whether you’ll need to earn more to buy more Nomad™ properties or less?
It is really the cash on cash return of the previous Nomad™ properties.
Cash on cash return is determined in part by the ratio of the price of the property you’re buying and the rent you’re receiving on the property. There are quite a few other factors as well though like interest rate and down payment as two additional examples.
The good news is that you can model how much you will need using the Real Estate Financial Planner™ software.
With this software you can estimate the cascading effects of buying properties each year and how that impacts your income requirement. For example, with the following assumptions from the calculator.
We’ve estimated the amount you’d need to be earning each year (assuming you have no other debt) to be able to qualify for the next Nomad™ home purchase in that year. Here’s a chart showing the gross monthly income required for your household using the assumptions above.
If you take time to play with the calculator you will start to see the importance of buying the right properties when utilizing the Nomad™ model.
Do I need to qualify for each new loan with Nomad™?
Yes… just like when you buy any other home, with Nomad™ you will need to qualify for each new loan that you use to buy a Nomad™ property.
Qualification often includes talking to a Mortgage Broker and providing them with documentation to prove your income and assets and having them pull your credit.
Depending on the properties you’re buying with Nomad™, it may get easier to qualify for future loans based on the income you’re receiving from the properties you’ve converted to rentals or it may become more challenging (usually in cases where you have negative cash flow).
That’s why it is so important to select properties that would make good Nomad™ properties when you’re purchasing.
How much do I need to make to do my first Nomad™?
How much you need to make to do your first Nomad™ property really depends on a number of different factors. Some of those factors are:
- The price of homes that you’re planning to buy – the more expensive the home, the more you’ll need to make because you need to be able to support the payment on the property for the first year that you are living there and do not have any rent coming in.
- The amount that you put down – the less you put down the higher the monthly payment you’ll need to be able to afford.
- The interest rate that you are getting on your loan (which is partially dependent on your credit score) – the higher then interest rate, the higher your monthly payment will be so you’ll need to earn more to be able to qualify to buy the home.
- How much other debt you have – part of the qualification process uses your debt to income ratio. If you have other debts like car loans, student loans and/or credit card debt, you will reduce the amount of home loan that you can qualify for.
You can use the software to model the property you’re buying to see how much income you might need to earn (assuming no additional debt). I ran a scenario with a $200,000 home. Here were my assumptions.
With those assumptions and no additional debt, you’d need to be earning approximately $2,547 per month for your household to be able to afford your first Nomad™ property. Here’s a chart showing the monthly income requirement for 10 Nomad™ purchases over 10 years.