My husband and I are aspiring to break into real estate investing, have studied BP for over a year, but have been around and around, back and forth about the best strategy for our first deal. We are trying to overcome analysis paralysis and finally take action. While we do have cash saved up, we'd prefer to work on our credit for another year before looking at getting a mortgage or commercial loan to possibly do a fix and flip.
If you were us, would you a) use our cash to purchase, fix and flip something older and cheaper outright which seems like a huge undertaking for our first deal, b) use our cash as the downpayment/skin-in for a hard money loan (balloon) while we work on conventional qualifications to refi at a lower rate in 12 months, c) My in-laws are in the process of purchasing a seller-financed home and are interested in "renting-to-own" their place to us. I know there is equity in the place, I would just need exact numbers from them before we would even consider it. Even so, my husband is most interested because my in-laws only want to get what is owed on it, and it appears that using our cash for some minor improvements on it (or she has offered to get a HELOC for improvements) could add value. My husband likes the idea that we could move from our current apartment into a possible live-in flip to get our feet wet with little to no use of our cash. Again, I would run exact numbers before committing.
Or d) would you utilize some other strategy that you're willing to elaborate on. A house hack or living together here isn't an option because the current house is relatively small and my mother-in-law is basically at the point of closing with the new house she's found and fallen in love with. Thanks for any advice!
You could do an FHA loan with a gift of equity from your in-laws. They could also agree to pay all your closing costs from their proceeds, so you have no down payment and no closing costs......Sign and drive so to speak.
FHA actually has no minimum credit score requirement, however most lenders that do the FHA loans have overlays and will set their own minimum scores. You would have to ask the various lenders in your area what their min. score requirements are for that type of loan? My company will go down to a 580 min. credit score on FHA.
I bet with some homework, you can finance it now and then figure out how to do the rehab? FHA also has a FHA 203K which will allow you to purchase and rehab all with one loan. so you could rehab the property with that loan and still potentially be in and out of the deal for nothing out of pocket. Its worth a look?
@Andrea F. Hi Andrea! Glad to hear you're making moves on taking action with your real estate investment career.
I think the best and safest option is C- take on a rehab of your in-laws place. I'm sure the debt you'd have to service on this loan would be less expensive than a hard money loan, also this option keeps your cash reserves higher thus your risk exposure down - as you would only have to make monthly payments and come out of pocket for the renovations.
Just make sure to do the necessary renovations to get the dollar value you are seeking on the sale and I'm sure this opportunity could be the one to get the confidence under your belt to continue investing down the road! It's always a good idea to scope out recently sold properties and see the type of work done on those properties to feel confident about your resale value.
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