Good morning. We are looking at buying our first investment property in the near future and were surprised to find out that banks are very reluctant to mortgage investment properties under $120k. We have the cash to purchase our first property ($50-$60k) however with rates still low we would like to finance if possible. I'm wondering if it makes sense to purchase the house cash then go back and take out a home equity loan on the property instead of doing a personal loan. We both have ~790-800 credit scores so our rates should be pretty low.
@Steven Virgil have you considered buying a more expensive and more desirable property at $75k minimum to avoid this financing challenge? With good credit and a decent amount of cash, imo you should buy the nicest asset in the nicest area of the location you are investing in. This alone is the greatest way to protect yourself as an investor, asset choice. Desirable properties stay rented, are easiest to manage, attract good tenants and decrease your turnover costs, arguably the greatest cash-flow and return killer there is. Just my current investing philosophy (ie opinion). If you do decide to buy a less expensive property it might be good to find a regional bank or community bank who might be willing to finance a $50-$60k property. A home equity loan will be a fixed rate but it might also be a higher rate. Another option is to consider a HELOC on the rental property after purchase. For example Pen Fed offers them on rentals at 80% LTV on rentals not held in an LLC if you have 3 properties or less including your primary. Again, my advice would be to consider buying a nicer asset with the capital/credit you have. My $.02
@Brian G. thanks for the great advice. Our goal for our first property is to use it solely for STR with the bulk of our income coming from college football home game weekends. We wanted to start relatively cheap and if all goes well, expand to more expensive properties. In this market, STR rental rates aren't linear with home value from what we have found.
@Steven Virgil have you connected with a knowledgable person who is successfully doing what you want to do in the local area? STR can be very lucrative but they can also be very management intensive and your buying criteria is really really important. If you can, find several people doing this in your area (ie call listings on VRBO, Air BnB) and pick their brain, etc. Find out what the business world calls "best practices". Find out how they are succeeding and what they've learned so you can accelerate your learning process and avoid any huge pitfalls, mis-steps, etc.