I want to start acquiring rental properties. I'm interested in learning more about the financing options. I live in the northeast where properties are not cheap. A typical loan for an investment property is going to require 20-25% down.
Are there other options that require a smaller percentage down? If I understand FHA loans right they must be owner occupied.
If you can find a good deal on a place and the right lender you can work around the large down payments. I know investors who get hard money loans, and some use lenders that lend up to 75% ARV. So say you find a good deal on a distressed property, to make the numbers easy
You get a property in bad shape from a motivated seller for $50 K
The property needs about $25 K in repairs to get it good shape
In good shape the property would sell for $100 K
So if you can get an appraiser to agree to the $100 K After Repair Value, then with these types of lenders you can get $75 K financed (75% of ARV). That means you have the entire deal completely financed to buy the property and fix it up with no money down. Please realize with these types of lenders you may need to pay a monthly fee for this type of hard money loan.
So after the house is fixed up you have two options;
1. Sell it, cash out around $100 K, you will have to pay some for the money loaned, and some for closing costs, etc. but should still leave some room for a good profit.
2. Rent it, turn into a buy and hold, once the place is fixed up and you have some equity in it, pay off the hard money by refinancing with a more traditional loan.
Obviously this type of deal take as good motivated seller, or discounted price one property, and the right type of lenders to help.
Try to find real estate investor friendly lenders, where I live they can easily be met by going to some REI meetups. Discuss with these types how to creatively finance deals, you can find ways to work on investing in RE without the pricy 20% down on conventional loans.
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