I will be getting in to my first investment by buying a multi family and living in one side. I don't have much to my name so I will be using my VA loan with 0% down to get me started. But, I know, especially in my area multi family's are off the market really fast. Whether I am putting 20% or 0% down, how do I possibly compete with experienced investors paying cash for properties?
Wish I had a magic bullet answer for you, but I think the answer is patience. It'll be a numbers game. Also, do your best to limit the contingencies you request in your offer.
Those of us in America just have to deal with that change:)
By learning more ways to move the money through a deal.
@Ryan Hanrahan Get preapproved with a VA Lender FIRST............That way you do not have to have a financing contingency in your offer. ALWAYS have an inspection contingency and an appraisal contingency in your offer. I used a VA Loan to buy a duplex in Oakland a few years ago in a "Hot Market" and it worked like a charm because MOST people weren't even trying to buy multifamily so there weren't as many offers out there.
You are not competing with other investors. You are competing with the person in the mirror. Be better at sourcing opportunities today than you were yesterday (and do that every day). Soon, you will be experienced.
Couple of suggestions:
1) if you don't have kids or don't care about the school system (perhaps your kids are going to a private one) pick markets that have less desired school systems
2) find private lenders that will lend you cash for a certain period of time, so that you can make your transaction cash only up front and then move it into a standard financing down the road
3) borrow cash/funds from your pension fund or your life insurance
4) Network, network and network (extensively) to find the right opportunity
My very best!
Thank you all for the quick responses!
@Ryan Hanrahan , based on your location, you may not be competing with investors for a property listed on the MLS. Since you are house-hacking, the numbers are different for you. Continue to make offers on properties that appeal to you, and you'll get there!
Hi @Ryan Hanrahan -
Cash buyers are attractive to sellers for two primary reasons:
1) ability to close quickly (think days rather than weeks)
2) fewer contingencies (no loan contingency and rarely an appraisal contingency)
If you want to compete, keep this in mind as you are structuring your offers.
To address item #1, you need to be aware that, depending on your market, VA loans may not be the norm. You'll probably come across quite a few lenders who will tell you that they can do VA loans, but that doesn't mean they do it well - sure, they can stumble through the process a couple times a year, but that's not what's going to help you. You need the lender that can do these loans in their sleep and knows how to streamline the process as much as possible for you.
Also, have your agent take a look at just how fast the cash buyers are moving in your market ... for example, I run teams in both the SF Bay Area and the Raleigh Triangle metros - in 2019, approx 60% of the cash deals in Oakland closed in 7 to 17 days; whereas, approx 60% of the cash deals in Raleigh closed in 16 to 34 days. For somebody needing to get a loan, those are two completely different worlds to try and compete in. Know your market and structure your terms accordingly.
For item #2, there's risk by not including certain contingencies. If your lender is willing to take you fully through underwriting before you're in contract, you can confidently consider removing the loan contingency. But, I'd double check with the lender before actually doing so - make sure that nobody is misusing terms and misunderstanding what is being considered and the repercussions that go along with it. If you remove the appraisal contingency, you are gambling - no other way to put it. Sure, you and your agent might be confident in the value of the property, but, at the end of the day, you are at the mercy of a random appraiser and what they think of the house on that given day. It's a risk.
The other thing for you to consider is the idea of writing a "love letter" for each offer. It may sound silly, but I've seen it work too many times to discredit it. Not every seller is looking for the absolute most money or the fastest close - if there's something in your letter that they connect with, you better believe they will consider taking less money and/or being flexible around your time frames. Who knows, maybe this was their very first investment property and they bought it with a VA loan :)
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