So I've been listening to podcasts, reading books, following the forums, etc for over a year now.  I'm in the process of saving money, while practicing analyzing properties, etc.

I was analyzing properties here in Virginia, and recently found what I think is a great deal. It was a 2 bed 1 bath SFH, 980 sq feet, on half an acre for $45k. During my research I found out it was a HUD foreclosure. It would rent for about $800/month. Also, all the comparable homes in the area sell for $120k+.

I started trying to get a pre approval for a loan on it, but so far the banks and credit unions I've gone to only offer a 15 year, 25% down loan for investment properties.  My preferred lender has a 100k minimum for mortgages.  

I was really trying to find a lower or no money down type loan since I don't have $11k saved yet, but it seems like it's just not available for investment properties.  According to the banks, this wouldn't qualify as a second home since it's too close to my current residence, and it wouldn't be owner occupied.  I'm in contact with another bank right now, but at this point I'm not very hopeful.  

Some may think I'm being too honest with the banks, but I've always figured that honesty is the best policy, and I wouldn't want to be accused of fraud, etc later on.  

My plan was to finance this with whatever I could qualify for, fix it up, rent it, and then continue with the BRRRR strategy to fund more properties.

My question with the BRRRR strategy is how can you refi for 30 if all that is available is 15 year loans (at least in my experience so far)? Also, once you refi for a larger amount, won't that eat up all your cash flow? I could see it making sense with a 30 year, but at 15 the monthly payments would be much higher.

Am I just missing something?

Thanks everyone,

Beau

@Beau B. Bray I love that there are frustrations because that is what keeps or pushes most people out of the business.  Be the one to overcome those frustrations and find a way to profit.

If the house is truly worth a lot more than $45K, consider a hard money loan.  You can search the term here to learn more about it.  These are people who lend money based on the asset, not on your credit worthiness.  You could get a hard money loan (it'll be costly, so there has to be enough margin for it to make sense), fix the place up, hold it for a seasoning period (the amount of time before a lender will allow you to refinance).  Generally this will be six months or a year, but there are some out there who have no seasoning period requirement, and then refinance.

For instance, maybe you can get a HML for $60 for purchase and rehab. Do the rehab, rent it out, make the payments, and after 6 month refinance what is now a $120K property at a reasonable rate. 70% loan to value refinance would be $84K. That would give you enough to pay off the HML and put some in your pocket.

Now, all that said, I'm skeptical about the $120K valuation.  Be sure you don't make any crazy assumptions.

@Beau B. Bray You  need 15% down payment for 1 unit but lender will charge MI. If you want to avoid MI 20% down payment is required for 1 unit. 30 year fix   amortization is avilable under conventional loan.

How much equity do you have in your current primary residence? You could put a HELOC on that and then buy the $45k investment property with the HELOC or even better a fixed rate home equity loan on your house.

@Ron Gallagher I've only been in my current place for a year and a half. I used a 0 down VA loan, so my equity is minimal.

@Harjeet Bhatti   Thank you for the information!  Those are better numbers than what I've been quoted here in my area.

@Larry T.  After speaking with banks around me, I've begun considering HMLs.  I just wanted to try the bank route first.  With the options I've been given from the local banks so far, is it normally difficult to refi an investment property?

I really appreciate the responses so far everyone.

-Beau

This is great as it is seemingly a big issue but i only see one problem that needs to be solved!

By my eye it looks like you just need a better bank!

Time to go out and find a new preferred lender.  Dont be afraid to go the next town over or look for a national lender.  Find one that does it at a 25yr amortization and understands the business.  I know they exist and i bet there are some that are even a sponsor of this website.

You have come a long way, dont let something like a bank telling you no get in the way of your goal!  Go find another bank.

For instance: We built an investment fund and raised $2M based on the assumption that a bank would lend on a 25yr amortization on single family real estate at 70% LTV. Well when it came time to refinance those properties the banks all of a sudden changed their mind and only wanted to lend 15-20yr amortizations and 60% LTV. Well the numbers aren't great for our investors at those terms so we dropped those banks like a bad habit and found the ones that were willing to lend our our terms...and we did!

So get your sales hat on, go out there and find some better banks to make your dream happen.  trust me, they are out there.

Could you/would you consider moving into the new property and renting out your current residence?  I have lived in every property I own so I have low owner occupied interest rates on my mortgages, and you could take advantage of low down payment owner occupied mortgages. 

@Sam Craven Thanks so much for the recommendations.  I'm definitely hunting for a better bank.  I know that after my first deal, I'll have more capital and experience for my next one.  I wasn't even intending to look for a deal to buy when I found this one, I was just practicing analyzing properties.  This one just seemed too good to pass up.  I look forward to when I'm at an advanced point and can raise that kind of money.  

@Ron Gallagher I have definitely considered that. Or just moving myself to the new place and treating it almost like a live-in flip. It's only about 2 miles from my current residence. Plus if I lived in it, I could potentially use my VA loan benefit to get it at 0 down. Unfortunately, I know that at this point the property wouldn't pass the VA loan inspection, as one of the rooms needs the floor replaced.

Hi Beau, I understand your frustration.  if this is in your personal name, I believe M&T will lend 20-30 years.  I also think they will lend under 50k.  I could be wrong but I can ask my contact there.  It amazes me the difference between banks and especially between different credit unions. So, just keep shopping!

Your going to need to save up money plain and simple . Investing is going to be very frustrating if you have nothing to invest 

@Beau B. Bray . My brother and I just started our LLC trying to invest in rental properties here in central Virginia. We have saved up over 20k and we can’t even get a line of credit or loan. So i most certainly understand your frustration.

If you want to move into the home find a lender that will let you do a 30 day escrow holdback for the floor and then they will sell the loan to the VA after the floor is replaced. they will charge you upfront for the cost of the floor at closing and have the appraiser come back and reinspect. It will cost you a little more for your appraisal but will be worth it. Also large credit unions are your best bet for financing smaller loans. Keep calling credit unions.

@Beau B. Bray there are companies out there that lend on rentals and it is based on the asset and not income. So if there is a lot of equity in the deal I would say it would be a deal. They have a little higher interest rate but if you still cash flow it is a good thing. Remember 100 dollars cash flow and 1 deal is better than no deal at all. It’s all about getting your foot in the door. It’s about your goals and how bad you want it and finding a solution to your problems. Even if someone says you can’t do it. Do your due diligence and search for these companies on google. The internet is your friend. Best of luck.

Are you sure on your rent number?  I landlord and PM in Hampton Roads and that seems really low to me for a 2 bedroom SF.  If you want to send me the address or at least neighborhood and age I can give you some feedback.

Originally posted by :

   @Larry T.  After speaking with banks around me, I've begun considering HMLs.  I just wanted to try the bank route first.  With the options I've been given from the local banks so far, is it normally difficult to refi an investment property?

I really appreciate the responses so far everyone.

-Beau

It is not difficult at all to refi. It may even be easier than the first time around. Banks will only offer up to a certain percentage of purchase price. It is called loan to purchase or LTP. It doesn't matter what the property is worth. It could be worth 10 times what you are paying and they'll still only give you a percentage of the purchase price. But with a refi it is loan to value or LTV. It goes by the appraised value of the property. So if it appraised for 120k after their seasoning period, they lend based on a 120k property and you could even put money in your pocket. I've done so before.

@Beau B. Bray Hi there! I can totally relate. I recently bought my first investment property with cash. It was under 20K and when I was ready to refi the property I used my broker to shop for banks. Property appraised at $56K and I was able to mortgage it with a 30y @ 42K....I was all in at 40K so I was able to get all of my money back out of it thankfully!! I did not have relationships with any bank so it was better for me to use my broker to shop for banks. I went into the investment like I was going to college. Even if you break even/lose a little .... (hopefully you make money) it is okay. It was a learning process and I was super happy to break even on my first deal. As someone suggested be diligent about your ARV number. I was not as close to mine as I could have been had I done better research. The house I bought was unique and not too many other similar in the area so my number was off by about 10K. Best to you!!

Thank you everyone for the replies.  I'll keep moving forward and searching for banks that are more open to investments and my situation.

@Dennis M. I'm definitely continuing to save up money.  My plan wasn't to try to buy this property, but when I found it, it seemed too good to not try for it.  I probably broke one of my rules and started to get emotionally involved with this property, being a great first deal, etc.  

@Patti Robertson I'll message you the details, I appreciate it!

@Beau B. Bray Thanks for sharing! I am also looking for my first deal, and I can give you some advice when working with Hard Money lenders as that is who I have been getting term sheets from on houses I’ve made offers on. Hard Money is hard because it is EXPENSIVE. I’ve found you need $20-25k in cash reserves for every $100k or so you borrow. For example, if the house costs $50k and needs $45k in rehab, expect to need to have $25k sitting in an account. These funds are for: Upfront Points - HM lenders charge 2-4 points depending on the lender that must be paid up front. That means if you borrow $100k you have to pay $2-4K in points. Down Payment (if necessary) - this is depending on the deal and your credit worthiness. Six Months of Interest Only Reserves - if your monthly payment on the loan is $900 then you need $5400. 1/2 to 1/3 of Rehab Bridget to start the project - YOU have to pay the contractor out of pocket to get started. You get this money back on your final draw from the lender. So if you’re rehab is $45k they’ll need between $15k and $22.5k (depending on lender) in your account. Using the small numbers you’ll see- $2k (points) + $5,400 (reserves for interest) + $15k (rehab kick start) = $22,400. This doesn’t include any other “fees” the lender will surely have and any potential closing costs that may be associated with the deal. Just a friendly tip! Hard Money is great for getting started, but the deal has to be JUST RIGHT. It can’t sort of be a deal if you’re tight on cash. In my market, I personally wouldn’t recommend using HM unless there’s a lot of room in the deal and it’s less than $100k all in unless you have over $30k in cash to be looking at the bigger deals and rehabs. If the deal is solid you’ll get all your money back and be all in for “no money” and be able to BRRRR the house, but that’ll take 6-12 months of your cash sitting in the property before you get it back for seasoning on a refi.

A lot of banks won't lend to investors won't lend over 20 year amms for investors. But we've had good luck getting at least 20 year amms. Cash flow can be tight at that amortization, but you will burn through principal real fast. So BRRRR deals with such loans can still work.