not enough money for closing costs AND down payment...

60 Replies

Hey BP, i'm looking to buy my first property and plan on house hacking it. The property is a 3 bed 2 bath in Manayunk going for 229k. It is fully rehabbed and in amazing shape- I know I can get 750 per room bringing the rental income to 1,500 covering the entire mortgage.


The only issue is that i dont have enough money for the closing costs and minimum 3.5% down... does anyone have any tips or advice for this situation?

Do you have a 401k? You could take a loan from it.

My advice: don't buy it.

You're trying to spend every penny you've got to put this deal together and then you won't have any money to deal with the little surprises life throws at us.

Every property I've purchased had a surprise maintenance issue that cost me thousands within the first few months. My first investment cost me $6,500 to buy and then $10,000 in repairs in the first three months (I got half of it back from insurance but it took a couple months). My next property required $8,000 for a new roof right after purchase. Next property was an unexpected $5,500 for a furnace and duct work. Next one was 11-units with four vacancies right after closing, three of those units required renovation, two furnaces needed to be replaced, and I spent almost $4,000 on plumbing in the first six months.

I read from other investors experiencing the same thing. They buy the property and then get hit with unexpected expenses within the first few months. You need to be able to purchase the property and have a reserve to handle what life throws at you. If you spend every dime just to get the deal, the entire thing could fall apart when you get hit with a major expense.

Originally posted by @Chris Seveney :

Do you have a 401k? You could take a loan from it.

I do, but since ive only been in the work force for a little over 2 years, i dont have too much to pull from

Originally posted by @Nathan G. :

My advice: don't buy it.

You're trying to spend every penny you've got to put this deal together and then you won't have any money to deal with the little surprises life throws at us.

Every property I've purchased had a surprise maintenance issue that cost me thousands within the first few months. My first investment cost me $6,500 to buy and then $10,000 in repairs in the first three months (I got half of it back from insurance but it took a couple months). My next property required $8,000 for a new roof right after purchase. Next property was an unexpected $5,500 for a furnace and duct work. Next one was 11-units with four vacancies right after closing, three of those units required renovation, two furnaces needed to be replaced, and I spent almost $4,000 on plumbing in the first six months.

I read from other investors experiencing the same thing. They buy the property and then get hit with unexpected expenses within the first few months. You need to be able to purchase the property and have a reserve to handle what life throws at you. If you spend every dime just to get the deal, the entire thing could fall apart when you get hit with a major expense.

Thank you for the really good advice- I guess im just trying to figure out how I can get my into my first deal.

What I have often seen on offers on my properties are “seller concessions”. You offer $239k and then ask for $10,000 at closing. They still end up with $229k, and you have the money to cover costs.

@Brandon Ribeiro Try going with the BRRR method. Hard money lender to get you in, then a refi to pull out equity. You could also try down payment assistance programs. They vary from state to state. But do your research. Different lenders offer different loan products which also can assist with offsetting those cost you are coming up short on. There are ways to do it, you have merely got to keep trying.

That is a tough scenario. I think that what you are trying to do is spot on, minimizing (or negating) your housing expense in order to bolster your saving and investing power. Unfortunately, as already pointed out by @Nathan G. , you are putting yourself in very precarious position if anything goes wrong and you have deployed ALL of your capital (plus some in this case). And not just with the house, what if your car breaks down? What if you need to take some emergency leave for yourself for a family member? Ect, ect. 

The most prudent thing to do would be: Find a nice but inexpensive rental and then live below your means for about a year, maybe you have a buddy who is trying to house hack and you can rent a room from someone else. Save all you can. Go to Mr Money Mustache website for some aggressive (arguably too aggressive for some) methods on cutting the spending so you can put some money away. Save up an emergency fund (3-6 months of liquid cash, how much will vary based on who you ask/read), then put everything that is left into an account to save for a downpayment, closing costs (although asking the seller for closing cost assist is also a great plan), and some reserves for whatever "little" issues come up with the house.

Then come back to it in a year and you will be in a much "safer" position.

Best of luck.

@Brandon Ribeiro why not pull a partner into this? If it’s a good investment you will find interested people at local REI meetings, or perhaps a friend that has an interest and is willing to do a JV under terms you set? Do use a lawyer for that!
Start selling things that aren't necessary. I had a nice new truck, a vintage collector car, a motorcycle, and numerous other recreational toys. I sold everything and bought a $1,000 beat up car for transportation and used all the money for a down payment to get into my first deal. If you are serious about it you will find a way. Dont say you can't afford it, say how can I afford it - Robert Kiyosaki Rich Dad Poor Dad
@Brandon Ribeiro . I would cut your expenses and/or increase your income so that you can get into your first deal in the future. You can’t afford this property. You would also need a little extra cash for any problems that you will discover after the closing with the property. This is not the right deal for you.

I'm not a rental property owner and know nothing about them, but everything I read says 1% rule... rent should be 1% of PP. at $230k with a $1500/month rent... is this even a good deal? $1500 would cover mortgage, PMI, insurance, and all the other fees/calculations rentals need to factor in? If you had a smoking good deal I would think sell everything you own and get into it. This doesn't sound like any kind of awesome deal, unless I'm missing it!

@Brandon Ribeiro Have you gone as far as getting preapproval? They will want to see all your funds. They may want to see leases too if you cannot afford the mortgage on your own.
@Nathan G. I agree, either get it for cheap enough where you have a good amount of reserves, or don’t buy it. There is always unforeseen costs. I am now dealing with a lead paint issue on the exterior windows. Luckily the inside was ok, It’s got all new paint! Another lesson in the books.
@Brandon Ribeiro Is this your first home? Checkout 100% financing for first time homebuyers. Try a local bank oR credit union first. Put in an offer for over asking and ask them to pay closing costs. (Ie 5k over ask and seller concession of 5k closing costs).

"Thank you for the really good advice- I guess im just trying to figure out how I can get my into my first deal."

The old fashioned way...cut expense and save.  Even if you scraped the money together, you would be one sneeze away from pneumonia (vacancy, unexpected repair, job gap, tenant doesn't pay, economic down turn).

@Brandon Ribeiro Simple answer: Don't. 

Even if you could get into this deal, going off your post only, you don't have enough cash reserves in case something goes awry. 

Anyone can get into a deal, getting out is the trick. You're on the right path - continue to save, educate and invest and soon you'll be able to do more than 1 property. 

@Brandon Ribeiro ThIs wIll sound harsh but Your deal sucks anyway so stop trying to figure this one out and keep looking . Save for more reserves . You must always keep atleast a line of credit open so you can mitigate risk for repairs and hiccups

@Dennis M.   I'm not so sure the deal sucks if the actual fair market rent is $2250 for a fully renovated house. Buying it based on what he get roommates to pay is the question. The 1% rule has a lot of leeway based on condition. While you should always have reserves, a fixer upper needs more than a renovated place, though any property may need work at any time, because sh*t happens.  Appliances die, leaks happen, and even insurance has deductibles. If there's not enough to close AND no reserve, even a credit card or line of credit, then walk away from the deal.

@Brandon Ribeiro With that Golden Ticket of 3.5% down I would go for a multi family asap. Dude live rent free and save up for your next deal. It worked for me and I’m doing better financially.
@Brandon Ribeiro you can ask for the seller to pay up to 3.5% of the closing costs.

I would say - go smaller! I have seen many attractive deals and really wanted to get into them but after working the numbers, they did not make sense! There are many inspirational BP podcasts where people talk about how they started, with much smaller properties! Work your number backwards and get a pre-approval to figure out what you can afford! Always keep some cash for unexpected expenses and rainy days!! Don't get pulled into attractive deals, keep your emotions aside. Good luck!

I think you should save up some funds for about a year until you have what is needed. What if you dont get any tenants in it for awhile, sounds like you dont have any cushion for those unforeseen circumstances. I think your on the right track but it takes work to get there and sometimes shortcuts can set you back so I would get some money saved up.

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