Newbie needs help understanding finance options on a real-life scenario

[George B.]

Hello all,

My name is George. I'm a young guy who has discovered a passion for real estate, I've been reading the forums and articles for a while, I LOVE this site, and I'm finally ready to begin investing! :D But I need your help.

There are two, 2-family properties I am interested in purchasing right now. Let's call them Property A and Property B:

Property A

• Short Sale
• List price: 165,000
• My intended offer: 110,000
• Very minor work required (mainly cleaning and painting)

Property B

• Not a short sale
• List price: 148,000
• My intended offer: 140,000 (seller is not very negotiable)
• No work required

Both properties will cash flow, pass the 50% rule, etc. Originally, before I educated myself, I thought, "oh, I'll just buy Property B as an FHA property with 3% down and put in an offer on Property A...and since short sales usually take much longer to close, I will have at least 5% to close on Property A as a conventional 5% property in the event that the bank accepts my offer" :) HA! -- Now that I am educated, I realize I need at least 20% down to buy Property A.

Unless I hit the lotto, there is virtually no chance I could have ~$22,000 in a few months to buy Property A.

My questions for you all are:

1. Can I buy both of these properties?
2. If so, is there another way for me, a rookie, to buy Property A with much less than 20% or, dare I say, NO money down?
3. Do you have any other creative suggestions for me?

Thanks in advance and sorry for the long post!

[Simon Campbell]

Regarding the short sale property: In my experience, lenders are only looking at around a 5 - 10% market price discount on a short sale making your lowest offer price around $148,500. If that cannot cash flow for you, then I would suggest moving on.

As mentioned before, FHA loans carry a higher APR, permanent MI which is at a higher rate than most lenders PLUS an upfront mortgage fee of 1.75% which can be wrapped into the loan. This makes this type of mortgage much more expensive than other loan packages.

My suggestion is to get yourself into a bank and make sure that you can qualify for a loan. Then have your loan officer break down the pros and cons of their different loan options. Also, talk to them about grants and assistance for first home buyers.