Specialist · Nashville, TN · Member since 2017 · 1 post · 0 votes
I've been learning about real estate investment for a couple of years, and am ready to get started on my first property. I've found a good looking multifamily home in a nice Nashville area listed for a little under 250,000, which has 2 units. One is 3 bed, the other 2 bed and it has nice views.
So I did the math and could rent them out for 1400,1600 pretty easily. With the 50% rule I'd have 1500 a month to pay the mortgage and make some money.
This seems like a great deal to me, assuming it doesn't have any underlying issues.
The real problem is I have no credit. I have a good resume and have a job doing maintenance at Cheekwood (about 1.5 years now). I also do work, and have for the past 5 years, for a private investigator in town.
What can I do to fund this purchase and get started? Do you have any advice?
For what it's worth, my original plan was to take out a credit card for a year and then apply for an FHA loan (but would have to live there).
Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
9y
Originally posted by @Account Closed:
@Page Kelley Put 25% down and you should have no problem.
That's not true. If it's 1-4 family the buyers credit and taxable income will be looked at by the lender. Amount down doesn't matter.
I owe 50% LTV on my primary home and can't get a loan (refi) even though I have "50% down". In my case it's due to tax income but if my credit sucked I'd have the same issue.
Best help for OP is to buy a 5+ unit. I just did a $5m loan and I don't think they even ran my credit.
Suggest to either look into FHA with 3.5% down and do a BRRR, or find a credit partner to get started. Also look for any local REIA club to network with local investors to see if there is anyone there who can help you. With FHA there may be other government assistant program you can qualify for to lower the amount of money you need to put down.
I don't know Nashville so double check your numbers. Validate the rent because 1.2 rent / value is hard to come by IMO in a hot location like Nashville on MLS. Using 50% rule to estimate is good for quick & dirty, but you should plug in all the numbers into your own spreadsheet or BP's calculator before you jump in.
I've found Nashville BP'ers really helpful when I was researching the the market. Connect with them and see if they can give you more pointers. @Luka Milicevic - can you chime in and give some comments?
Rental Property Investor · Brooklyn, NY · Member since 2014 · 722 posts · 1k+ votes
9y
@Page Kelley. As Cody L said above, getting into commercial property will help because your personal credit is less important than in residential property, where the lender is really looking to you to repay the loan.
With commercial lending (i.e, 5+ units), the lender is looking to the cash flow from the property to satisfy itself that the loan will be repaid. It is going to focus on what's called the "debt service coverage ratio," which in simple terms is the amount of cushion the property generates to pay the loan. Usually lenders want to see at least 1.25x, meaning that, if the loan payment is $10,000/year, the lender wants to see $12,500 in free cash flow at a minimum.
There are other things you can do to improve your chances: (1) hire a professional manager, rather than managing yourself; and (2) partner with other people with stronger credit scores.
Just remember that, when it comes to a commercial loan, your net worth with be the upper limit on the loan amount. That means that if you have $500,000 in net worth, the most a lender will lend you is $500,000 no matter how much you put down and no matter how good a deal it is. If you want to do a bigger loan, you will need to find partners who are willing to sign the loan with you.
Kansas City, MO · Member since 2015 · 609 posts · 321 votes
9y
Maybe I've always misunderstood "commercial" property vs "residential" and their lending types.
I know that 5+ units require commercial lending, but to my knowledge, you can still get a commercial loan for a 4 plex. You simply have the option to go traditional lending vs commercial lending. Maybe I'm wrong?
But I hear a lot of advice saying that the loaning structure is split based on units, whereas I understand it to mean that while you're forced to go commerical at 5+, nothing is mandatory at 4 or less. If I'm correct, and maybe I'm not, but if I am, then Page can get a commercial loan for under 5 units and they will primarily look at property income instead of his personal income. My bank looked at both though when I bought 12 units, fwiw.
The easiest thing the OP should do is call a bank and see what they say. Go with a smaller local bank and you'll probably get a better response, I know I did. Good luck!
Investor · Nashville, TN · Member since 2016 · 88 posts · 66 votes
9y
There is a man on the Real estate investor page for Nashville that is always posting stuff about wanting to finance deals. Ira Wood. I would recommend joining that group to contact him. I imagine his terms will be higher then conventional , but is an option. What area of Nashville is it ? I am open to discussing options as a potential partnership as I can provide financing. Also what about asking the investor you work for? Lastly, larger places such as 3 bedrooms are not my favorite to rent, because of roomates. I have found I am more successful with smaller places, but I do find multifamilies most appealing so I applaud you on that.
Real Estate Agent · Nashville, TN · Member since 2015 · 2k+ posts · 2k+ votes
9y
@Page Kelley Unless your duplex appraises for $312,500 at the least, you are going to have a tough time getting hard money to close on it.
A hard money lender is going to want to see an already approved loan from a bank and they are going to want to make sure you can cash them out for their full loan amount, plus points and interest. (At least that's the lenders I work with).
The lender @Carrie Carlton mentioned funded my last Quad and that's exactly how the deal was structured.
If you're looking to put down your own money 20% or do an FHA loan for 3.5% and live in the one side then you really shouldn't have an issue funding this duplex.
Investor · Nashville, TN · Member since 2016 · 76 posts · 73 votes
9y
I can't imagine you will be able to make a rental work with hard money. As many people have said, bring in a credit worthy partner (could be a parent, someone on BP, etc.) and it shouldn't be a problem to get a loan of that size.