My first time out...advice?

7 Replies

I have $80,000 to my name. I want to buy a rental. I think I should start small. I have excellent credit,  but no job. I contacted a realtor to help me find some rental properties. He found some. He suggested a non bank lender. Here is what they offered:

-Private loan

- 50% down

- Interest rate: 9.9%, interest only with a balloon payment

- $2000 finder fee

- $895 processing fee

- $450 appraisal fee

- $750 attorney fee

- Prepayment Penalty 1st year , 12 months interest, but no less than 3% of the loan amount

- Loan will be for 3 years with option to extend to 5 years based on payment history

I don't know. What could POSSIBLY go wrong? 

What if the lender decides NOT to let me refinance? Then I will have to sell.

Can they call in a loan? I don't know, does that happen often?

If they DO let me exercise the 5 year option, how does that work? How much will that cost me?

If they Do let me refinance, does that mean I get hit with another $4095 in fees?

My realtor says this is a great loan.  He says a $60,000 loan  at 10% interest would be about $500/month.   Add $200/mo for taxes and insurance, about 700 /month.

Here's the hypothetical: 

-Find a 120,000 quad

- I put $60,000 cash down

-take a loan with these terms for another $ 60,000

- $2000 / mo gross income

-$500 interest

-$200 / mo taxes and insurance

-$200/mo management fee

-$100/mo misc.expenses.

$1000/mo profit x 60 month loan term = $60,000 profit.

Worst case scenario: 

At the 3 year mark ( 36months,) they chose not to refinance. Let suppose I could sell it for what I bought it for, 120,000.

Repay the $60,000 loan, I'm left with my original cash down payment, plus potentially $36,000 profit.

Even if everything goes perfect, I still have to consider costs associated with a pre -purchase inspection, title transfers, title insurance, and closing costs, right?

What do you all think? Best regards,S. Sparks

I think you need to find a different lender. That sounds like a hard money lender because those rates are very high for a rental property with a lot down and a short term. Possibly look for a different Realtor as well because he should not have told you to talk to a hard money lender for a rental property. You want something that can be amortized for 30 years and a much lower interest rate.

Yes you will have to pay all those costs as well (inspection, appraisal, closing costs, etc.).

I would also possibly suggest getting a job as well. It will make financing a whole lot easier.

I may hold  my cash until I got that job.  Gotta have reserves until the uncertainty passes @Stephen Sparks !  If your new job is in the same line of work as your old, you may qualify for good conventional financing.

forget that deal. That's a guido loan. And forget about moving to Texas. . Ocala is a good place to invest. You need to find a good motivated seller who will sell to you on terms. In fact there is no way I'd put anywhere near $60K down. That's crazy.

Try to find a seller whete you just take over his loan amount, with no down. Or very little. 

A job would come in handy, because that will take the pressure off you. 

Good luck 

Is the 100 mo misc meant to cover all repair and maintenance? If so on a quad for 30k per unit your in for a rude surprise as will be substantially more. This will cut your cashflow way down. No job and reduced cash flow tells me to put on brakes until you figure out how to earn more money.