What would you do? Scenario, Financing

Question

Hi BP members,

Scenario:

You have excellent credit, own a home (very little equity due to large Down Payment, Mortg. Low), Not much in savings, maybe 7k and you see a 6 plex fully occupied for sale at 409k (under value for the area). Rental income about 950 per unit.

As with most investment properties you need 20-25% down.

See the dillema?

How would you approach this?

Steve Babiak · Answer

I have posted example calculations for second loans at this next link:

https://www.biggerpockets.com/forums/48/topics/854...

Jacob Reilly · Answer

Account Closed brought up is a great one, but be aware that it limits you to a four unit property.  It can be an awesome way to purchase a multifamily property with only 3.5% down.  Good luck with whatever strategy you choose, and I completely agree with your sentiments about the BP community.

-Jacob

Jonathan Ortiz · Answer

Account Closed

Great post! Question: Do you know if you qualify for a FHA loan? IF you do qualify and you are looking to purchase a multifamily property, you can live in one of the units for at least a year (based on the FHA requirement but double check) while at the same time rent out the remaining units to acquire some cash flow. Of course you would need to perform your due diligence and ensure the numbers will work in your favor. And, your downpayment if using a FHA loan would be 3.5% - I believe the terminology used for this strategy that I've read on BP is called "House Hacking" - Try to search and read some articles on BP about House Hacking as that may be an option you can utilize in your market. Best of luck to you!

Brent Coombs · Answer

Account Closed,  the benefit of low mortgage payments is not to be sneezed at! Great that you can see the positives that ARE there.

Roughly 40% of the country rent - and will never get ANY equity doing that!

A large part of the game = Patience!

I just thought of a new phrase: "Controlled eagerness". Can you dig it?...

(But I can't copyright it - it has been thought of before apparently)...

Brent Coombs · Answer

Account Closed, so in 2007, your $100k went whoosh, and was never seen again...

For many others, it was a lot worse! Question: is 2016 the new 2007?

This year, we ALL need to be smarter than then (except those "Big Short" folk).

Keep it in mind. Cheers.

Brent Coombs · Answer

Account Closed, yes, Refinancing is "based on the house's market value (today), vs. what you owe the bank"! Normally, over a nine year period, that gap would have increased significantly in your favor. BUT, that dreaded number: 2007...

Am I to take it: because of "2007", that gap has NOT increased much, if at all?

Brent Coombs · Answer

Account Closed, being "under value for the area" doesn't automatically make it a good deal, unless you have an end-Buyer already and are just looking for a quick wholesale profit. As far as I can tell, the cash flow is minimal (even if it is good "for the area") ie. less than 1% gross per month is hardly worth putting up your own home as security for, IMHO.

By the way, if you put up such a large (more than usual?) deposit on your own home, why is your equity low? Or, is it just too recent to warrant a refi?

Welcome to BP. All the best...

John Santero · Answer

If you think its a good deal first thing I would do is control it. Are you in direct touch with the owner or is it thru a realitor? If its thru a realitor you have to go thru proper channels. make an offer that allows both inspection and financial outs. try to get them as long as possible- say 30-60 days minimum.

Once you control the deal- you can do your due diligence to see if it really is a good deal. If is is- I am sure others would agree with you too- banks- hard lenders- equity partners etc.

Andrew Syrios · Answer

I think trying to find a partner makes the most sense on such a property. You find the deal and do the work, they bring the money. If you can find a lender to do a second (assuming it will still cash flow) that would be great too.