So here is my situation: I am looking to get some rental properties but have no clue where to start with funding. I have a good amount of cash set aside and have maybe 3-500 in debt. I also have 400k in equity in my current home.
My problem is that I have no idea where to go next. I have been looking at the MLS and HUD and have seen some interesting prospects, but have no funding. I emailed the lender I got my mortgage from but haven't heard back.
Do you have at least 20% downpayment? If so, call any lender and you should be able to find out if you qualify for a conventional investment loan.
Depending on the cost of the house, I could have 10-20%. But couldn't I take equity out on my home if need be?
I really understand nothing about real estate. Sorry if the questions seem stupid.
Yes, you could get a HELOC or do a refi on your primary and invest the cash. Lots of folks like that strategy. I don't, because as far as I'm concerned a house you live in is just another expensive doodad and you should own expensive doodads free and clear.
20% is the current baseline for investor loan down payments. Assuming you have 20% to put down, have decent credit (720+, maybe lower) and have income to qualify for the new loan without considering the rental income (need two years experience to do that) then you shouldn't have a problem getting a conventional loan. Best way to find a lender or broker is to speak with other investors in your area.
I agree with Jon - I believe @Mike Hurney is involved with REIA events in the Boston area.
Thanks for the input. I have great credit and a steady income. I don't think I should have an issue getting the loan I just didn't know where to go to even begin applying. I really appreciate the guidance!
Everything that has been suggested is great but you don't need any rental experience per Fannie Mae to obtain a rental. Freddie Mac requires 2 years of history however.
If it's an SFR that you're looking for then 20% across the board is standard and when you start looking at units ( max 4 for conventional financing ) the down payment will change depending on if you use fannie or freddie for your loan.
I hope this information helps and if you have any questions please ask and I'll do my best to help you out.
Instead of buying rental properties on the MLS (which require mortgages and a high downpayment), perhaps I may suggest that you look into the "subject-to financing" niche, and acquire properties with built in financing. This offers a significantly higher cash on cash return (since you usually don't need much cash down on a sub-2 deal, if any).
I had heard about this method, but again, no clue where to begin. It seemed like a great idea in theory, and I understand the concept. My biggest set back is lack of knowledge and what the first step is.
I too am very new to this and looking for financing, have you read the ultimate beginners guide? it is available for free here on the website and on kindles. I have gotten a lot of great information out of it thus far.
Good luck with your investments.
You can get a conventional investor loan without having two years experience. The two years experience is needed if you want to include the rental income when they compute your DTI to qualify for the loan.
@Lauren Lee Thanks! I haven't read that yet, seems like a logical place to begin though.
FHA and Fannie will allow you to use the rents as income if you're buying a home. Two years experience is not needed for this two but it is required for any Freddie Mac loan.
So if you buy a 4 unit and the rents are 4K you can use 75% of that income or 3k
Say your total bills are 2k and you make 3k. Your DTI would be 66% but now with the extra 3K from the purchase you now make 6K and you DTI 33%
So Mr. Holdman you are 100% correct if you're doing the loan through Freddie. And in addition if you're going FHA or Fannie you can use the rents right away.
Pretty kool :)
"You can get a conventional investor loan without having two years experience. The two years experience is needed if you want to include the rental income when they compute your DTI to qualify for the loan." Thank you for that Jon Holdman. I was thinking that was true, but wasn't sure.
Personally, I would buy some fixer up rental property, get a HML hard money loan, rehab it and rent it out for a 12 month total period, then get a conventional loan to pay off the HML.
My reasoning it that you'll get a better deal and much better ROI with depressed property than something that is already occupied and ready to go.
That might not be true 100% of the time, but I bet it is true 70% of the time. My experience so far has been that people are renting properties to people with everything in the properties still from the 1950s. I don't think you can get increasing premium rentatls from that.
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