I'll preface this by saying we are new to real estate investing, so be gentle. Metrics aside, we have some questions about financing and structuring. My brother is currently renting a unit in a triplex which is going to hit the market soon. We are looking at the potential of buying the property before it is listed assuming we can get the deal we want. The facts. We are planning on splitting the down payment 1/3 each on the property. The property would need about 30k in additional cap ex, which we would like to be under some sort of loan. My brother would continue to rent one of the three units once we own the property. We would like to refinance the property as soon as we can and pull out all or some of the original investment. Now some questions:
- What options would we have for financing? Is there a way around having to put down 20-25%? Is there a way to finance the improvements in the same loan as the property? If not, what is the best way to get cash for improvements?
- Is the best bet to form an LLC and finance the property through the LLC? If not, what are the other options?
- Is there anything else I need to be looking out for? Any concerns/issues with having an owner renting out a unit of a property that they own?
I know these questions are very wide open, but before we get too serious I want to make sure this is a viable options. Thanks in advance for any assistance.
@Kyle Bumpous How long before the property comes on the market? The cheapest thing to do with the lowest down payment would probably be to help your brother house hack the property.
@Kyle Bumpous , definitely look into a 203k loan. It will enable you to use a smaller down payment and also finance the repairs. Most investors can’t use it because you must live in the property. Since this is part of your plan anyway, it could be a great fit for you.
203K loan sounds like a good idea.
You probably don't want to buy it and finance it through an LLC. If you did, you'd probably need 25% down and your interest rate would be a little higher because if you used an LLC the bank would treat it as a commercial loan.
If you want to limit your out-of-pocket, then you definitely need to look at FHA. However, you need to make sure that the higher level of financing doesn't wreck the numbers.
@Dan Turkel @Collin Garbarino , I was told by a broker that there is a caveat to a 203k loan that buying from your current landlord disqualifies you from the loan. Is this valid? We had scratched this as an option, but maybe it would be better to reach out to a 203k specialist to verify. Thanks for the input.
@Kyle Bumpous , I’m honestly not sure about that. Definitely reach out to a specialist to confirm