Hey Y'all. I've been working hard to find the right investment property, and I think I have found the one at this point. It's not on the MLS - older gentleman is selling off his units. The cash flow is great. He is asking for $205,000 as the sale price. I need to hit 25% for the downpayment to be able to qualify for a conventional loan. This is right around 51K. I'm about 5-10K away from having this, depending on what the closing costs are. My question is - how do I get the remaining 5-10K? I have enough to cover that in a retirement account, but I would prefer to keep that as a safe haven / "reserves" account of sorts. I'm afraid of not having the money in time to "seal the deal", as they say. I have thought of a few options, but they are drying up:1) Close friend. He's all tied up in equity and mortgages though. So no go. 2) Family: Eh, didn't work out, when I asked. They are anti-real estate. 3) I own my car out right. It's valued about 2x the loan I'd want. So perhaps pull a bit of credit on that? 4) Cash advance on a credit card. Holy expensive, no? 5) Hard money lender. Would anyone even take on such a small loan? Thanks in advance for your advice and thoughts. :)

If he's trying to minimize his capital gains tax, why not trying to negotiate a seller-financed deal @Filipe Pereira? You could get a lower downpayment, but pay a higher monthly rate so as to make up for it.

So long as it conforms to the loan guidelines, put the clause "Seller is to contribute X dollars towards Buyer's pre-paids and closing costs," and then negotiate a higher sales price so the seller nets the same amount, but you basically wrapped the costs into the loan. I believe for a conventional 25% down you can have up to 2% of the purchase price in closing costs covered, but I'd check with the lender.

Talk to the seller and see if he would come down. Not sure if you've negotiated price with the seller yet. Never hurts to ask if he would come down to where you are at the moment. The worst he could say is No, then move to your list of back-ups. @Filipe Pereira

Be careful when borrowing to come up with the down payment. Your lender will ask for copies of your bank statements and if there's barely enough to cover the down payment, they'll track it backwards to see where it came from. If its out of the ordinary, like a $10,000 deposit seems like it would be, they'll ask where it came from. If you say its a loan to family/friends etc, they'll look at it like a second lien, and could increase your interest rate or deny the loan. If it were me and I had just gotten out of school, I'd stop eating and whatever else it took for the next 30 days to save up the difference between now and closing.

@Aaron Mazzrillo hit the nail on the head with this last statement. The seller is very aware of what he is doing, but he does, in fact, have a nice cash flowing property. Dealing with him off market (as we are) is allowing us to get in before other investors do. For the record, one was on MLS, we put in a full price (minus a small seller concession) off, and he went with another offer.. Point being, he is trying to simplify, but is also pricing aggressively enough to "dangle the carrot" for anyone to bite. I am just glad that we are in the position we are, because even though he is looking for a certain #, at least we know where we stand and what we are willing to accept in terms of cashflow, whether you are using a simple Cap Rate, it works. I like the car note idea for sure. You can get $$ for 2-3% for a purchase, so my guess is a re-fi would be 4-5%. The largest problem I see (as someone mentioned) is the DTI getting higher. I get the feeling though, that the slight change in DTI may not make a difference depending on what the lender is allowing you to use as future stated income from the property. Your first piece of business is to call your lender (after you calculate the monthly liability the $10k you are borrowing will bring to your budget), and just lay it on him. He plugs it in, and says, "ok, its a good idea," or "you might not want to do that." My guess is that it would be all good. I love all the input from everyone. BP rocks!!

Just make sure you know your numbers. Many "older gentleman" pretend like they are looking for an out to simplify their life, but in reality, they're looking for a mark to take to the cleaners.

I think just laying it out at a standard capital gains tax as if he owned the property free and clear. Its not feasible (and he might find it a little weird) if you guess at exactly how much of his mortgage is paid off. I'd just go for the big number and let him do the math when he realizes what he'd have to deal with based on where he's at.

Using the last dollar to purchase real estate is often a bad idea because running real estate without money is a bad idea.

So close to 25%...how do I get the last 5-10K?

Mike F.

Investor · Denver, CO · Member since 2015 · 570 posts · 521 votes

10y

If you have it in your 401k there is no better retirement investment than this transaction. Just take it out a loan, this amount is so small in the scheme of things and a 401k loan is so easy to do I would not be wasting any time letting this deal get away from you over this and all these mechanics for such a small amount.

So close to 25%...how do I get the last 5-10K?

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