Struggle with finance options as a newbie

13 Replies

Hi all Started looking at properties and actually found a single family rental I could go for. Issue is financing for the 20% down payment. I️ know there are options to go with a hard money lender but after crunching the numbers may not cash flow positive. Still thinking of other options such as cashing out my ira if needed. But just wondering if others go through this or maybe I’m doing something wrong. Let me know. Still trying to get a new Connecticut property the right way by end of next month. Thank you

You have a couple options. Buy the property as is with 20 percent down. Buy a distressed property (can use hard money lender), rehab it and then refinance out of it.

I wouldn’t suggest cashing out your Ira.

I wouldn't do a hard money loan for your first property - often times it's too risky for the first timers. By the way is the property that you are looking at rent ready or are you trying to put 20% down and rehab it to get it rent ready?

Hi Dexter - 

Congrats on taking the initiative! 

First off, what is the hurry with "end of next month" ? Finding the right property takes time ... don't rush it unless you have a compelling reason to do so. Buy the wrong place and you'll pay dearly - this is a delicate process. 

With respect to financing ... some options are: (1) hold off until you have sufficient cash for 20% down; (2) "House Hack" by living in one unit (obviously this does't satisfy the SFR you're currently looking at) and utilizing an FHA insured mortgage ... this will allow you to put down 3.5% to 5% or so. You're only obligated to occupy for 12 months; (3) find a partner/ investor to assist you with the down payment.

Just some ideas ... my preference is (1) and (2). 

All the best 

Thank you all for replying. I figure I have time on my side but I also don't want to sit on the sidelines either. So I'm trying to find the right deal and see what I can do. 

@Eunice L. I just looked at a property 2 streets away from me. It's agent owned and there are tenants in there until July. Looks like a good rental property at a good value. problem is I don't have the capital to put the 20% down payment. So would have to take a loan or partner with someone which I still looking for.

@Jason A. Unfortunately I can't  house hack as I just signed a lease on a single-family home in the summer. Still looking for a partner and putting down money. I just know it will take me awhile to save $16,000 in cash with my other expenses at the moment.

@Dexter Kubi , I feel your predicament. Before I bought my first property, I saved up for about 16 months for the downpayment working a side hustle. It wasn't easy but totally worth it. I had to go that route because no one else in my family is in to real estate. In fact, they warned me not to risk it. But seeing for some time that my properties have been cash flowing, they are willing to listen and are interested in partnering!:) I hope you can partner up with someone that trusts you in your area. If you have all the numbers crunched out and you show that you have done your homework, someone that already knows and trusts you may want to partner up. Wishing you the best!

@Eunice L. Thanks. I know it can be done. I'll continue to pay down debt but seek options on how to get started. Hopefully by networking at a local REIA i can meet someone who can open me up to an opportunity. I was thinking maybe doing condos if there is a low HOA fee but regardless any property is going to need a downpayment.

@Dexter Kubi you should come to the Manchester Meet-Up. Its a great place to meet and network with like minded investors. When I started going, I had no cash to start with. Then someone recommended an idea and I started with the BRRRR. When that was successful (I used HM first time) then private money became available. I think you have options, just weigh out the risk vs reward on pulling your IRA funds. But the house hack is the best way to get started IMO.

Hope to see you at the next one.

-Scott 

@Dexter Kubi I'm pretty much in the same boat as you, currently saving money to get in my first property as well. One organization I came across that may be able to help is nhhfa- New Hampshire Housing Finance Authority. ( I'm in NH but Ct has the same thing- Connecticut Housing Finance Authority, chfa http://www.chfa.org/default.aspx ) In nh they have a first time buyer assistance program that offer 0 down financing and cover closing cost. You have to choose from a list of state banks and the interest rate is higher but it may be a way for you to get your foot in the door. Again this is NH so I'm not sure if CT offers the same but its worth checking out. Good luck

Hi Dexter, a few thoughts here. Just b/c you have a lease doesn't mean you can't owner occupy.  If you find someone to take your place (and you'd have a few months to do that since mortgage approvals take a while anyways) then you'd have no continued obligations to your landlord. That way you can take advantage of the owner occupied down payment options that @Jason A. mentioned above. 

***Food for thought: if you want to grow in the future using house hacking and eventually buy a duplex, tri, or quad, you might want to consider starting with a multifamily as your first purchase b/c, when applying in the future for owner occupied loans, you'll have to convince the mortgage company that you will indeed owner occupy and they're skeptical about borrowers that are going from single family houses to multifamily houses. Not to say you couldn't do it, it's just an additional obstacle. Ideally, you'd start with a 4plex, then the next year, buy a 3, then a 2, then get into single families. For that scenario, if you can come up with 5% down, then go the conventional route rather than FHA so you won't need to refinance before you can buy your next one (you can only have 1 FHA loan at a time).

Another reason I like the idea of starting off with a bank rather than hard money is because the banks don't require you to have a track record as a landlord to lend to you. Looking for partners when you haven't done a deal yet can be really tough.

But, since you mentioned hard money...you mentioned the property doesn't cash flow with a hard money loan. That's not uncommon and I don't let that deter me from a deal, as long as it cash flows to my standards once permanent financing is put in place. That being said, if you're using hard money, you want to REALLY make sure you'll qualify for a mortgage because you'll NEED to refinance. Get yourself preapproved by 3-4 banks and then don't do anything major to change your finances during the 6 month seasoning period. 

Hope this helps. 

I'm in a similar situation but it's all about overcoming the obstacles. Is it listed on the MLS? If so, it may be trickier with this scenario but see if the seller is willing to carry the note for a low cash down deal or maybe just the down payment amount. Starting out with 0 cash is about getting creative. Best of luck to you

@Stephanie Cabral All great advice. House hacking is unfortunately not an option for me at this time so I have to figure out something else. I would also need to see if I could even be pre-approved for any loans due to my high debt to income ratio. There have to be non-owner occupied loans around that doesn't require the 20%. 

I was thinking maybe using peer to peer lending as I have used them before on a different loan but like hard money, can I afford the monthly payment when I'm working on the rehab or waiting to get refinanced. 

I know the important thing is finding the deal first but I also want to make sure it's financially possible haha

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