How to Finance a Small (40K) Home Purchase?

Tulsa, Oklahoma
Creative Real Estate Financing
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How to Finance a Small (40K) Home Purchase?

Amber Douglas
New to Real Estate · OK · Member since 2024 · 5 posts · 1 vote

Hello There!  

I have found an 1100 Sq Ft home (2 bed 1 bath). The roof was replaced this year and the Central Heat and Air unit was replaced within the last 3 years.  The house is on a large lot and needs some updating... Most of which I can probably manage myself.  The house also has a small garage + an attached carport.  I think I could convert the small garage into liveable space.  This would add approx 200sq feet to the liveable area.  

I am currently listening to Investing in Real Estate with Little or No Money Down... But, I am not experienced enough to figure out how to manage something like this?  Approach local lenders for a what exactly?  How much do I finance?  Do I need to get an appraisal and an inspection?  Seems like an obvious yes... But, I am not positive.  The house is currently occupied... So it is liveable. 

Houses rent faster than you can post them in this area.. But!  I am not sure how to make the initial purchase...If I use a private loan?  Do I renovate and refinance into a conventional loan?  If so... For the full appraised value or just enough to pay back the small note+renovation costs?  

I am currently living in a rental as well.  Do I purchase the (40K) house and stay in my current rental while I renovate the other then just rent the other out?  Then refinance the home and use the equity as a down payment on a new property?  Renovate the new house.. Treat it like a first home loan... Live in it for a year.. Then rent it out?  🤔🤔

Any advice would be appreciated!!  

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  • JD MartinBusiness Member
    Moderator
    Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
    2y
    Quote from @Amber Douglas:

    Hello There!  

    I have found an 1100 Sq Ft home (2 bed 1 bath). The roof was replaced this year and the Central Heat and Air unit was replaced within the last 3 years.  The house is on a large lot and needs some updating... Most of which I can probably manage myself.  The house also has a small garage + an attached carport.  I think I could convert the small garage into liveable space.  This would add approx 200sq feet to the liveable area.  

    I am currently listening to Investing in Real Estate with Little or No Money Down... But, I am not experienced enough to figure out how to manage something like this?  Approach local lenders for a what exactly?  How much do I finance?  Do I need to get an appraisal and an inspection?  Seems like an obvious yes... But, I am not positive.  The house is currently occupied... So it is liveable. 

    Houses rent faster than you can post them in this area.. But!  I am not sure how to make the initial purchase...If I use a private loan?  Do I renovate and refinance into a conventional loan?  If so... For the full appraised value or just enough to pay back the small note+renovation costs?  

    I am currently living in a rental as well.  Do I purchase the (40K) house and stay in my current rental while I renovate the other then just rent the other out?  Then refinance the home and use the equity as a down payment on a new property?  Renovate the new house.. Treat it like a first home loan... Live in it for a year.. Then rent it out?  🤔🤔

    Any advice would be appreciated!!  

    Thoughts in no particular order:

    1. A 2/1 for $40k pretty much anywhere in the US must either be really rough or in a really bad area. Those are 2010 prices out in the hinterlands. Just a roof and a heating system are going to be 25-40% of the total value of this house. 

    2. Just because a house is currently occupied doesn't make it livable in the eyes of your financier. You wouldn't believe some of the houses I've looked at over the years that had people in them.

    3. A house that cheap is going to be difficult to finance with traditional methods. You'll probably have to go into a secondary market with a higher interest rate. 

    4. Your safest bet in something like this would be to live in it, rehab it, then sell it/rent it out and do it again. Because if it turns out that there's no market to rent it out, or it is a total train wreck, at least you're not paying rent in your current place as well.


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  • Tom S.
    Real Estate Investor · Burlington, VT · Member since 2010 · 2k+ posts · 1k+ votes
    2y

    @Amber Douglas  Usually for small loan amounts like that your best source will be small local banks or credit unions that know the property in question.  

    Check to see if there are any purchase + rehab options. I've done a series of smaller loans like that with my local banks in VT. For example, purchase of $50k, rehab of $25k and ARV of $110k. The loan converted to a standard mortgage after the rehab was complete, so no need to refinance or do a second closing. Less points and closing costs with a local bank as well.

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  • Amber Douglas
    OP
    New to Real Estate · OK · Member since 2024 · 5 posts · 1 vote
    2y
    Quote from @Tom S.:

    @Amber Douglas  Usually for small loan amounts like that your best source will be small local banks or credit unions that know the property in question.  

    Check to see if there are any purchase + rehab options. I've done a series of smaller loans like that with my local banks in VT. For example, purchase of $50k, rehab of $25k and ARV of $110k. The loan converted to a standard mortgage after the rehab was complete, so no need to refinance or do a second closing. Less points and closing costs with a local bank as well.


    Thank you!  I sincerely appreciate the input.  I will begin calling local banks and credit unions tomorrow to inquire about their options.  

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  • Amber Douglas
    OP
    New to Real Estate · OK · Member since 2024 · 5 posts · 1 vote
    2y

    @JD Martin Thank you so much for your response!  My area is pretty rural.. The median home value is approximately 94K.  I was able to get into the house and it will need some updates.  Mostly cosmetic, but you are correct... Not inhabitable per my comfort zone.  I think the carpets were installed in the 20's.  Lol.  

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