Affording first duplex, not owner occupied

[Alex Markle]

Hi everyone:

I'm currently 1.5 years in on a 30 year fixed rate mortgage on my house that I live in. I'd like to find a duplex I can afford to rent out for my first investment but since it won't be owner occupied, lenders want 25% down. In the Boston area, that could mean $50,000 on a $200,000 duplex. Since I've only lived in my house for a year and a half, I don't have any equity to speak of. Does anyone have any suggestions as to how to come up with that kind of money? Or should I look farther away from my house for the sub-100k properties? Thanks for your advice!

Alex

[Nicole A.]

Are rents high enough that a $200K property would cash flow? Have you looked up the property taxes on this duplex? You could quite possibly find it online.

Plug in all you can find into this calculator to see if it'd cash flow:

http://www.goodmortgage.com/Calculators/Investment_Property.html

As far as coming up with the downpayment money...that depends if your lender requires your downpayment to be vested (i think that's the term) or not. Some lenders require you show you've had that downpayment for up to 6 months!

Talk to small banks that are local to your area. My local bank does not require my downpayments be in my account for 6 months. It can magically just appear shortly before closing. They have never asked and I'm on my 3rd deal with them. I don't know if it makes a difference, but I'm also under a LLC. So talk to several local, small banks.

Next, you could borrow from your 401k.

Or you could show how great your numbers are on paper and ask someone with about $20K or whatever laying around to loan it to you. Someone I know loaned me $20K for a downpayment. I offered him $100/month for 3 years. At the end of the 3 years, I owe him the $20K back.

$100/month was good return for him and not too killer on my cash flow. But I still have to factor in that I'm able to save up enough money in 3 years to pay him back! You must make great cash flow.

Finally, if you get tons of 0% credit card deals in the mail with those "blank checks", write one to yourself. You'll spend a few hundred dollars in fees, which is probably the cheapest loan ever. Just have a game plan for when the 0% deal is up. Can you pay it all off in that time? Can you afford to roll it over into another 0% deal?

If you're open to it, you could rent out a bedroom or two in your own home and save all that income to go towards your down payment of a rental property. Yes, you share space, but perhaps they're hardly home? Then you also get to write off a bunch of stuff on your own home for taxes.

Lots of options.