First deal help (financing options)

8 Replies

Hello BP, I'm looking for some advice on the best approach to getting this property. 

Breakdown of the numbers- 

5plex 3 2bd/1ba 2 1bd/1ba (Completely renovated and turn key with appliances and w/d)

Asking $365K (I'm pretty confident I can get it for $350K, off MLS property)

Numbers based on $350K

Taxes $2700 annually (or $2200 owner occupied) 

Insurance ~$300 month 

Rent $875 2bd/2ba $675 1bd/1ba

Total $3975

(these are very conservative numbers..could be as high as $950/$750 $4350 total)

Monthly Cash Flow $1500 

(assuming zero money down and 5% for 30 years and before budgeting any expenses) 

Currently the only finance option I have been looking to use is my home equity loan, however that is only $100,000. So my question is in order to lock up this property what are my other options? I have considered going the FHA route, but the mortgage insurance and other fee's have me concerned. I may have bitten off more than I can chew, but what are my options. I am not apposed to moving into one of the units.

I'm new here and new to REI so if I have left out any numbers or completely over looked something please let me know. I look forward to learning more and hopefully getting my first deal under my belt. Thanks!!

Left out something pretty important hah..

Mortgage, insurance, taxes, $2400 month (based on terms above) 

It's over 4 units so it's going to fall under commercial financing.

The bank is going to put more weight on the properties ability to produce income then your own personal income. So huge benefit if the seller operated the building well and kept good records. Major problem if he did not.

What you will want to give your lender is the last 3 years of the sellers sched. E.

Typically the bank will be looking for at least 25% down.

Medium holton wise property group logo jpegJames Wise, The Holton Wise Property Group | [email protected] | 216‑661‑6633 | http://www.HoltonWisePropertyGroup.com | Podcast Guest on Show #127

Thanks James! The property was very distressed and an unoccupied for several years before the current owner did a full renovation. So there is no history on the properties income. From talking to the owner it seems he got in over his head during renovations and has decided to sell rather than holding it himself. 

I spoke to my bank VP today and he informed me I could NOT get an FHA loan on a 5plex and that my only option would be a business loan. This would be a floating rate. So my next question is there any other way to get a fixed rate?

Getting a commercial bank loan on a building that does not have 2-3 years of rental history is very difficult if not impossible.

I do not know anyone doing those. Is your bank VP aware that there is no rental income on the previous taxes?

If he is and he still wants to loan i'd prolly jump on it but I have a hunch he doesn't have all the info he needs yet to make a decision.

My advice going forward.

If you want to use an FHA loan you can buy a SFR,Duplex,triplex or Quad. Loan qualification is going to be based on your ability to repay with no rental income in place. So strong debt to income and credit score.

If you want something bigger you'll need commercial financing. You will want to find a building that is already performing and has sellers who can prove that with their tax returns.

Medium holton wise property group logo jpegJames Wise, The Holton Wise Property Group | [email protected] | 216‑661‑6633 | http://www.HoltonWisePropertyGroup.com | Podcast Guest on Show #127

@Spencer Rossie  

FYI in response to your PM to tag someone who has posted in the thread type in @?

their name will pop up.

Once someone is your colleague you can type @ then the first couple letters of their name and then similar names your also colleagues with will pop up.

Medium holton wise property group logo jpegJames Wise, The Holton Wise Property Group | [email protected] | 216‑661‑6633 | http://www.HoltonWisePropertyGroup.com | Podcast Guest on Show #127

@James Wise  Because of your earlier reply I made sure to bring up there would be zero rental history on the property when talking to my banks VP and he said that would be no problem. I definitely glad you brought that up so I was able to be sure it wouldn't be a problem going forward. 

If all units are rented, you can get a business loan from local bank, not a big bank.

Search for the local community bank that is within 5 miles radius. Most banks now are looking for new loans. We get 5 year loans with 20 year Amo at 4.5%. After your note expires, you can extend it at adjusted rate. Make sure that you don't have any prepayment penalties. Banks will look if the property will cash flow and they are looking for 1.2 debt service ratio. Also if it is possible you can assume seller's loan or ask them to sell it on CD for a short term and then after you feel it in with tenants and have leases in place, you will be able to refi with local banks.

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