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:
- 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
-$200 / mo taxes and insurance
-$200/mo management fee
$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.
That sounds like a horrible deal from the lender!
I also agree with everything Colin said.
If you can swing 50% down then just look into owner financing.
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.
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@Stephen Sparks ...move to Texas!
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.