How did you finance your first buy and hold rental property?

Question

We are currently evaluating REI opportunities. AFAIK, you need to put 20% down unless you are using house hack. I am curious to learn any other approaches you used to purchase your buy and hold rental and how did find them?

Da'Shawn Murphy · Answer

@Anna Buffkin I became even more thrilled reading your summary on a few deals you have done! That is amazing, and it was really inspiring. Were the strategies you used learned over a course of your investing career or did you consult with other investors? Also, is the Greenwood market a more feasible market as far as cost?

Sorry if it seems that I am asking a lot of questions but, I will be new to real estate investing (as far as ownership) upon graduating college and I just enjoy learning about different ways people have funded deals, especially when they didn't start off having a huge income.

Anna Buffkin · Answer

Here is how I financed several properties:

1. Turned home into rental: not really a house hack as I didn't realize the house would make a good rental until after I brought it.  It was my best performer last year.

2. Purchased a condo worth $30k for $18k: Signature loan (personal loan). No money down. It is in an area that was gentrifying.  It was renting at $550.  I just updated it and signed a new tenant at $750 per month.

3. Condo for $30k:  I financed this one with a small credit union who did small in house loans for properties under $120k.  There niche was old mill houses which often sell for $25k and had no problem with my condo.

4. 3 condo deal: Financed them together using a business loan from another credit union.  This lender became my preferred lender.

5.  House Hack:  I moved to a different part of the state about an hour and half away for my husband's work.  We brought a small house that looked to be a good rental to live in until we knew what we wanted to buy.  5% down conventional with a no PMI deal.  I can't remember why no PMI, but it was great.  I am under contract to sell this one currently.

6.  BRRR House:  This was a no money down deal.  I left with a check at both closes.  I used the preferred lender above who gave me 80% of purchase price plus 100% of rehab per contractor quote for a fixer upper that I turned into a rental. I left close with a $12k check as the house was purchased for $59k and had a $26k rehab budget.  The bank gave the rehab upfront instead of in draw form.  I used 18 months same as cash credit cards to pay for the work.  2 months later, I refinanced it for $107k loan and left with a check for $30k which paid off my contractor and any other items put on credit cards.

7.  Duplex:  The about $13k I had left from the original was rolled into a duplex I purchased.  Also, I had refinanced the package of 3 condos buy then as well.  I got the duplex for $60k.  This loan was under my lender's limit, but I had done several deals with them at this time and the bank let it happen.  I put about $5k into the property.  It rented for $650 and $750 ($1400 total).  I sold it for $92.5k last year (18 months later).

8.  Rinse and repeat.  Establish a relationship with your lender.  I thing I have done something like 7 or 8 mortgages with my preferred lender including refi's.

9.  HELOC: I purchased my current home as initially a live in flip as I purchased it $40k under the appraised value.  The house was too big for us, but before I even made the first mortgage payment I was pregnant with twins. I decided to stay as we needed the big house now.  I got a HELOC on it for $30k back in 2016.  I used that HELOC to pay off the signature loan on the first property reducing my interest rate.  I then rolled that first property into another loan I did with one of my houses and then used the HELOC gain for another purchase, though I forget which one.

Hope this gives you some ideas.  Also, we did this with not a huge income.  I am an accountant, but I have not worked full time since my twins were born in 2016.  My husband is a teacher.

Antoine Martel · Answer

Hi Bhakti,

Here are 3 ways how to finance deals.1. Conventional Financing - The most common. This is your normal 30 year loan, 4-5% interest rate, 0-1 point, This is great for buying Turnkey Rentals.2. Hard Money Lenders - This is great for Fix and Flip project, 8-12% interest rate with 3 points.3. Private Money - Here you can make your own rule. It's like using a Hard Money Lender except that you work with the person hand in hand, and not like a normal bank.

Good luck!