Rental Property Investor · Denver, CO · Member since 2016 · 66 posts · 44 votes
Hi all! My husband and I have two properties in Denver, CO that became rentals by circumstance, not intentionally. We're looking in to buying our first "on purpose" rental property. We're currently living in Akron, Ohio for a work assignment, although we'll move back to Denver in ~2 months.
We're looking at buying in the Akron/Cleveland area because the Denver market is out of control and properties seem to cash flow much better here. Several of the properties we're considering are around $50K and I've read most banks won't give you that small of a loan.
We have enough cash to buy it out right, but I'd rather leverage our cash to keep our options open for another property down the line. Are there options for small mortgages? Thanks!
Investor · Hercules, CA · Member since 2015 · 208 posts · 47 votes
9y
This is what I've found out going through the same process.
Local banks where properties are located (ie. credit unions, regional banks, etc) - They won't lend to out of state investors unless you have own a 2nd home or are employed in the area. Terms, rates, and fees are competitive. Slightly higher than conventional.
Conventional financing - I've seen some banks go down to 10K. Terms, rates and fees are the best out of the other options. Contact @Jerry Padilla
Portfolio lending - The lowest I've seen for an individual property is $45K loan amount based on 75% LTV (meaning property must appraise for min. $60K). Terms are short term 5 year fixed based on 25/30 year amortization. Rates are anywhere between 7-10%. Points and fees are high. Financing is asset based and normally requires an LLC.
Peer-to-peer lending - These are sites like lending club, prosper, etc. These are personal loans with rates around 10%. Fees are 1% of the loan amount. They will go down as low as you want and as high as $40K.
Hard money or private lender - Short term, high rates and fees. But this is good for transactional funding and fixers.
Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
9y
Your best chance will be with local banks, so I would recommend making a lot of calls and seeing what banks will consider. Also, if you can develop a good relationship with a bank and do multiple loans, they'll usually be more willing to do small loans. Finally, if you have more than one property, that can help as you can borrow on both and increase the total amount of the loan.
Investor · Tallmadge, OH · Member since 2014 · 81 posts · 32 votes
9y
Hi Kayla,
Im local and buying SFR at your price point and below, mostly below. the big banks will loan down to 25k with a minimum 25% down but will bump rate to make up for the small amount. I've had luck with very low closing costs ($380) via my credit union but they require 35% down, which beats $2500 any day. you shouldn't have any issues getting a loan. Try to do it in one person's name, due to Dodd Frank so you and your spouse can each pull 8-9 conventional loans. Not sure how accurate this is, but I was advised by the Wells Fargo agent that we could EACH pull 8-9 loans so if both names are on a loan we get capped early.
Podunk, WA · Member since 2015 · 109 posts · 30 votes
9y
@Kayla V. ~ have you tried HELOC? I've recently applied with B of A and the loan officer gave a fixed rate of 2.42% for one year. Other options are cash out refinance, or private funding from your friends or relatives of which rates are negotiable on a short term basis.
Rental Property Investor · Denver, CO · Member since 2016 · 66 posts · 44 votes
9y
@Nate Richards I hadn't considered putting it in only one name- thanks for the tip! We're both engineers, so we have solid W2 jobs. Thanks for the reassurance that we'll be able to get financing locally too- I'm in the early stages of researching properties but I'd like to start taking steps to get our "team" in place.
@Tek Chai Good suggestions, but I'd prefer longer term financing. We're planning to buy and hold, since the trade off to good cash flow seems to be a low likelihood of capital appreciation.
@Albert Bui Good to know that the interest rate will be a bit higher, but since it's a pretty low loan value, that shouldn't affect my numbers too much. Thanks!
Im local and buying SFR at your price point and below, mostly below. the big banks will loan down to 25k with a minimum 25% down but will bump rate to make up for the small amount. I've had luck with very low closing costs ($380) via my credit union but they require 35% down, which beats $2500 any day. you shouldn't have any issues getting a loan. Try to do it in one person's name, due to Dodd Frank so you and your spouse can each pull 8-9 conventional loans. Not sure how accurate this is, but I was advised by the Wells Fargo agent that we could EACH pull 8-9 loans so if both names are on a loan we get capped early.
Most of the small loans from small banks will be in house loans so I am not sure how the loan caps would apply. If they are reselling them then yes that can be an issue.
Investor · Boyd, TX · Member since 2014 · 688 posts · 467 votes
9y
Depending on the deal and your numbers you might be better off with just using personal loans to partially fund the deals. I have used Discover Personal Loans to fund 75% of a purchase and the rate was high by current standards at 7.99% but it still cash flows very well and will be paid off in five years. And while 7.99% seems high, my mortgage on my first home was 6.875%. Plus these are unsecured loans verses mortgages.
Lender · Bellevue WA & Orange County, CA · Member since 2013 · 2k+ posts · 1k+ votes
9y
True that, even at 4.875 or 5.000% note at 30 year fixed (due in 360 months / term 360 months) is a lot better than a private note that is due in short term or a ARM from a local portfolio lender. The only down side is non financial since conventional loans have to be funded in your living trust or personal name only (no LLC's, LP's, etc) and has strict guidelines to adhere to.
The pro's can over come the con's as long as the planning is set out ahead of time on your overall strategy.
Investor · Saint Joseph, MI · Member since 2015 · 93 posts · 50 votes
9y
@Kayla V. give Shawn Huss a call - Talmer Bank in Cincy, he definitely can do under $50k, and they are very fast. I just tried to post the number and email but it won't let me, so if you still need it PM me.
Investor · Waukesha, WI · Member since 2011 · 199 posts · 97 votes
9y
Hi @Paul Ewing - I'm curious on the unsecured personal loans that are not mortgages. When you do your income taxes are you able to deduct the interest cost against the property similar to how you would deduct interest with a normal mortgage?
New York City, NY · Member since 2016 · 470 posts · 348 votes
9y
@Kayla V. What rent are you getting on those sub-$50k properties? Be careful with those - it can be tough to set aside enough for future capex on low-value, low-rent properties.
@Kayla V. What rent are you getting on those sub-$50k properties? Be careful with those - it can be tough to set aside enough for future capex on low-value, low-rent properties.
Not Kayla, but my sub-$50k places rent for $700-$1000 a month.
Hi @Paul Ewing - I'm curious on the unsecured personal loans that are not mortgages. When you do your income taxes are you able to deduct the interest cost against the property similar to how you would deduct interest with a normal mortgage?
Yes you can write off the interest the same as a regular mortgage. It is really the same as getting private money. I have the loan proceeds deposited into my Real Estate Checking shortly before closing and then use them for a cashiers check when I purchase a property. This way I have a paper trail proving where the funds were used if ever audited. You unfortunately don't get a nice summary statement like with a mortgage. I just add up all the monthly interest in each statement. You can do the same thing if you have a credit card you use exclusively for refurbs and such.
Rental Property Investor · Denver, CO · Member since 2016 · 66 posts · 44 votes
9y
I just checked back in and thanks for all the responses. So glad I found this forum!
@Paul Ewing I also hadn't considered a personal loan. I definitely have some homework to do on non-conventional lending for homes. Our ultimate goal is passive income, so the lower rate would be preferred but those numbers could still work with the properties we're looking at.
@Albert Bui Conventional loans can't be funded under an LLC? We were thinking we'd set one up just because it sounds like a good idea, but I guess we can skip that step then. We already have a $1M umbrella policy to cover us because of the two Denver properties, which are in our personal names.
@Jack Gibson Thanks for the contact! Can you PM it to me? I'm going to start making some calls today and tomorrow.
@Eric P. The properties I'm looking harder at rent at ~2%. One is a duplex for $48,900 and both sides are currently rented for a total of $1050/month. We haven't been inside so I can't confirm it doesn't need an unacceptable amount of work though.
After figuring the financing out, next step is to find an investor friendly realtor so we can start seeing properties.
Investor · Hercules, CA · Member since 2015 · 208 posts · 47 votes
9y
This is what I've found out going through the same process.
Local banks where properties are located (ie. credit unions, regional banks, etc) - They won't lend to out of state investors unless you have own a 2nd home or are employed in the area. Terms, rates, and fees are competitive. Slightly higher than conventional.
Conventional financing - I've seen some banks go down to 10K. Terms, rates and fees are the best out of the other options. Contact @Jerry Padilla
Portfolio lending - The lowest I've seen for an individual property is $45K loan amount based on 75% LTV (meaning property must appraise for min. $60K). Terms are short term 5 year fixed based on 25/30 year amortization. Rates are anywhere between 7-10%. Points and fees are high. Financing is asset based and normally requires an LLC.
Peer-to-peer lending - These are sites like lending club, prosper, etc. These are personal loans with rates around 10%. Fees are 1% of the loan amount. They will go down as low as you want and as high as $40K.
Hard money or private lender - Short term, high rates and fees. But this is good for transactional funding and fixers.
Philadelphia, PA · Member since 2016 · 2 posts · 0 votes
9y
Thanks to everyone that has responded to this thread so far! I too am looking to buy my first investment property and wonder if bank financing is available for amounts under 50K. Does anyone in the Philadelphia, PA. area have experience with getting home loans around 50K?