Creative Real Estate Financing

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Amar Amar
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how do I acquire my next investment property?

Amar Amar
Posted Oct 19 2022, 14:13

Hello,

I am in the process of buying a rental property(1) for $400k with all cash (needed to get the best deal). I'm funding this from HELOC on my primary. I will most likely get $450k in heloc. For the first 6 months, interest rate is 3.75% on heloc. I would like to buy another property (2) right after all this is done ( once I rent this out). What is the best way for me finance the next one ?

1. Get a mortgage on property (1) and use that for 20% down payment for property (2) and put the remaining back to heloc ? Do I have to wait for sometime , either to get mortgage (1) or mortgage (2)?  Is Rental lease agreement on property (1) good enough to include rental income while calculating debt-to-income ratio? 

2. Get mortgage on property(1) and use that to do cash only deal on property (2)  and secure mortgage on that later to pay back heloc ? 

I’m confused which way to go and if I will qualify. Appreciate Any suggestions/input . 

Thanks!

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Heith Reade
  • Lender
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Heith Reade
  • Lender
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Replied Oct 19 2022, 15:30

Hey Amar, personally I would be in favor of using the cash out of property 1 to do an all cash deal on property 2 and then if need be you can use delayed financing on property 2 to payoff/down the HELOC. I say that because in general, when acquiring a property in cash you have more options regarding the property type, the state of repair the property may be in, and generally you'll have more negotiating power being all cash. As far as having to wait to take cash out of property 1, there are some specifics that come in to play as to whether or not you have to wait to get cash out of property 1. I suggest speaking with a lender regarding the specifics.

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Aaron Schrader
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Aaron Schrader
Replied Oct 19 2022, 15:51

Check this loan out: https://www.cmgfi.com/all-in-o...

I've shared about it before, not a lot of people know about it. I'm not a lender, but I'm in real estate and I see the value in this product. It's not for everyone, but it allows you access to the equity in the property without having to open a HELOC up.

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Amar Amar
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Amar Amar
Replied Oct 20 2022, 08:21
Quote from @Heith Reade:

Hey Amar, personally I would be in favor of using the cash out of property 1 to do an all cash deal on property 2 and then if need be you can use delayed financing on property 2 to payoff/down the HELOC. I say that because in general, when acquiring a property in cash you have more options regarding the property type, the state of repair the property may be in, and generally you'll have more negotiating power being all cash. As far as having to wait to take cash out of property 1, there are some specifics that come in to play as to whether or not you have to wait to get cash out of property 1. I suggest speaking with a lender regarding the specifics.

Thank you.

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Amar Amar
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Amar Amar
Replied Oct 20 2022, 08:22
Quote from @Aaron Schrader:

Check this loan out: https://www.cmgfi.com/all-in-o...

I've shared about it before, not a lot of people know about it. I'm not a lender, but I'm Thann in real estate and I see the value in this product. It's not for everyone, but it allows you access to the equity in the property without having to open a HELOC up.

Thank you. Looks interesting!

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Ben V.
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Ben V.
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Replied Oct 20 2022, 08:27

There's a lot here to pick at but maybe I can offer another way. 

Place an all cash offer on the investment property. However add an addendum that you are using financing first and if the financing falls through because you are unable to achieve it, you'll still purchase the home cash. 

This is exactly how Ribbon works, but instead you are just using your own funds instead of someone else's. You can save yourself thousands by placing a cash offer. 

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Amar Amar
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Amar Amar
Replied Oct 20 2022, 11:08
Quote from @Ben V.:

There's a lot here to pick at but maybe I can offer another way. 

Place an all cash offer on the investment property. However add an addendum that you are using financing first and if the financing falls through because you are unable to achieve it, you'll still purchase the home cash. 

This is exactly how Ribbon works, but instead you are just using your own funds instead of someone else's. You can save yourself thousands by placing a cash offer. 

This is an interesting approach!  Thank you for sharing. 

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Jared Hottle
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Jared Hottle
  • Real Estate Agent
  • Cedar falls IA Waterloo, IA
Replied Dec 2 2022, 06:39

Cash out refinance the first property to get capital. Rent out your personal residence if you can and go househack another and then take the money from your cash out to do some BRRR deals on your heloc. It will not be fun for a few years but you will thank yourself in 5.

Real Estate Agent Iowa (#S68688000)

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Dave McIntyre
  • Investor
  • Northern NJ
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Dave McIntyre
  • Investor
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Replied Dec 4 2022, 07:03

Hi Amar,

Another option might be to get unsecured funding where you can use the funds for down payments/gap funding, as well as 100% funding of deals. 

It's definitely available as there are lenders out there w/ less strict lending criteria than traditional banks that can help.

Best,

Dave

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Steve Vaughan
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Steve Vaughan
  • Rental Property Investor
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Replied Dec 4 2022, 07:15
Quote from @Amar Amar:

I am in the process of buying a rental property(1) for $400k with all cash (needed to get the best deal). I'm funding this from HELOC on my primary.

We only need to prime the pump once, so I would really try to buy the first one with conventional financing.   Is all cash absolutely required?

I save my all cash deals for truly motivated sellers with deadlines or for property that needs so much rehab it's not bankable in current state. 

Otherwise, it may be a blessing in disguise.   It will take 12 months to refi your cash out.  Might not be a bad thing to sit tight on deal 2 in this environment.

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Eliott Elias#2 All Forums Contributor
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Eliott Elias#2 All Forums Contributor
  • Investor
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Replied Dec 4 2022, 10:03

Use DSCR lending to put the minimum down payments on your next investment properties using cash from HELOC

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Austin Fowler
  • Rental Property Investor
  • Reseda, CA
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Austin Fowler
  • Rental Property Investor
  • Reseda, CA
Replied Dec 4 2022, 12:48
Quote from @Aaron Schrader:

Check this loan out: https://www.cmgfi.com/all-in-o...

I've shared about it before, not a lot of people know about it. I'm not a lender, but I'm in real estate and I see the value in this product. It's not for everyone, but it allows you access to the equity in the property without having to open a HELOC up.


 Can such a loan be obtained on an investment property owned free and clear?

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Stephanie P.#4 Multi-Family and Apartment Investing Contributor
  • Washington, DC Mortgage Lender/Broker
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Stephanie P.#4 Multi-Family and Apartment Investing Contributor
  • Washington, DC Mortgage Lender/Broker
Replied Dec 5 2022, 07:15
Quote from @Amar Amar:

Hello,

I am in the process of buying a rental property(1) for $400k with all cash (needed to get the best deal). I'm funding this from HELOC on my primary. I will most likely get $450k in heloc. For the first 6 months, interest rate is 3.75% on heloc. I would like to buy another property (2) right after all this is done ( once I rent this out). What is the best way for me finance the next one ?

1. Get a mortgage on property (1) and use that for 20% down payment for property (2) and put the remaining back to heloc ? Do I have to wait for sometime , either to get mortgage (1) or mortgage (2)?  Is Rental lease agreement on property (1) good enough to include rental income while calculating debt-to-income ratio? 

2. Get mortgage on property(1) and use that to do cash only deal on property (2)  and secure mortgage on that later to pay back heloc ? 

I’m confused which way to go and if I will qualify. Appreciate Any suggestions/input . 

Thanks!

Qualification is a concern.  If you get a DSCR loan on the property and assuming it's a single family residential property close to where you live in Montgomery County, the mortgage payment on a 400K at 8.5% is going to be $3460.  Add in taxes and insurance and you're looking at another $1000 per month.  Is that property going to generate $4500 per month in rent?
Go conventional if your income can support it and get your money back on the HELOC to be redeployed in less expensive areas or to fund flips, again, in less expensive areas.

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Aaron Schrader
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Aaron Schrader
Replied Dec 5 2022, 14:54

I actually called my local CMG to find out, answer is yes (if you qualify of course).  My local lender said your long term goals are going to be a factor if that specific loan is a good fit for you, if you plan to continue to hold it longer term then you could look at the All In One, if you are going to sell in the nearer future then maybe a Heloc would be a better option.  Hopefully that helps!