I first wanted to thank all the BP Members who had previous posts that were informational to me, with the added personal thank you to the following members:
Jon Holdman
Mitch Kronowit
David Beard
J Scott
Nick
Mike Seutin
And many more.
I closed on my first deal, and it was far from being as simple as I first envisioned.
It all started with restless nights of reading everything I could about REI, different forms of REI and fitting them with what my goals were from REI. After deciding on becoming a Buy and Hold landlord for semi-passive income, I started the search.
In December I really liked 2 properties that I had weeded through, and decided to put an offer in on one of them. I did not get a pre-approval letter prior to putting in the offer, but I didn't think it'd be a problem with me getting financing. After I put in the offer, I talked with lenders, and got the pre-approval (which he made me do, even though I put an offer in). I ordered inspections, and started the loan process. The inspections came back, and although they weren't horrible, they weren't the best. I started having second thoughts about which of the 2 properties I wanted more. I picked this property by sheer price, and not any other information (with regards to the 2 I had chosen).
For my own sake, I decided to order an inspection on the other property, without putting in an offer (same seller). Upon completion of the inspection, I decided that house #2 was really the one I wanted.
I closed the loan on the first, and backed out of the offer utilizing the inspection contingency. I then wrote an offer on property #2, which I attached the pre-approval letter. I also added concessions for repairs from the inspections.
Everything seemed to be going fine and we were into the holidays. We did a few more things on the finance side, then the new year turned and it was left a Voice Mail that stated "You've been declined, sorry. Let me know if I can help you out with anything else". I called and asked for reasons, and they stated that they wouldn't make enough on underwriting. This was disheartening since they knew how much the loan amount was going to be with the original pre-approval letter. They then gave me some contacts of who may be able to help.
Most gave the same story about it not being worth their time, because the issues around the loan amount and amount of up front money they'd collect.
I went onto a major servicer who indicated they didn't care about the loan amount, but the long term customer focus. GREAT. We start the loan process, it gets approval. I do everything else we need done, and it goes into underwriting and to risk assessment.
We order the appraisals, and they come back 14% lower than my offer price. The seller is livid, because the appraiser used some really whacked out comps (16 month ago sales, and a property that was more than 2 miles away, when there were closer and recent comps). The seller and I went back and forth for a few days until we came to an agreement on the price. I know I could have probably argued more and more and more to get it down the full amount, but at this point I wanted my first property so I can start feeling it out, and getting my hands dirty.
After a week or so, I get a message that I've been declined. Mind you, I'm not using the rents to cover any of the debt services. I'm using income from a job that I've held for 10 years. I have no debt, and could easily cover debt services without the rents.
We dig a bit deeper to find out why we got so far with the process, then to get denied. He uncovered that they had a guideline that indicated they would not fund an investment property that has been purchased by the seller within the last 12 months. This is similar to the Freddie / Fannie Flip Guideline for FHA, but for Investment properties, and instead of 90 days, it's 12 months.
So I shop for new financing, and I contact every single major bank you could imagine (my poor credit).
Finally, I get a very competent and helpful commercial lender, that says "look, I'll get with my residential loan officer and we'll go over your options" (I had sent him every road block I had gotten to at this point).
After 2 days he came back to me with my options, and indicated he doesn't see any problems with it being done with a 5yr ARM commercial mortgage loan over a 20yr amortization. This obviously changes my ROI negatively, since i originally anticipated a 30 yr, but again, at this point I just want to get some skin in the game.
Next, I ask "can I use the appraisal from Bank A for Bank B". He said sure, just get me the following things. I go back and forth with Bank A and Appraiser to get what the bank had requested as a requirement for inclusion of that appraisal (I really didn't want to spend another $800 to get an appraisal, although the seller really wanted another one done). FINALLY, I get the last document that the bank wanted (this took about 5 days of going back and forth).
We get all the paperwork done, and this loan is FLYING. Boy, finally I feel like it's going through, but I don't want to consider it done until I see the title transfer.
After all is said and done, all the other i's are dotted, and t's are crossed and as of March 1st 2011, the title transfered for my first investment property. I started my dream to own investment property in December, and after a few bumps, realized the first step in March. I'm ecstatic to have my skin in the game, and have since started searching for a second property.
Although I'm a small fry in a big bucket, I am glad to now be a Real Estate Investor (outside of buying shares in REITs, which has been a GREAT investment for me).
After my second property I hope to then decide what route I want to go with Real Estate Investing. I love my job that gives me my primary source of income, but I would love to provide great housing for great people while assuming positive cash flow as a semi-passive (because NOTHING is passive) income.
If you're reading this line, I applaud you for staying awake. I also hope that anyone who was on the ropes, or has been discourage by financing can read this and realize that IT CAN HAPPEN, but it is up to you.
And most importantly. If you want to do it, get out and do it. Don't over analyze it and analyze yourself out of the opportunity.
Thanks.
Ben
