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Updated almost 6 years ago on . Most recent reply

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Cody Richard
  • Wholesaler
  • Provo, UT
48
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79
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Best creative financing method for new investor?

Cody Richard
  • Wholesaler
  • Provo, UT
Posted

Which method of creative financing is the best for a new investor? I'm sure it varies from person-to-person so I want to provide a few details of what I am looking for. Non-owner occupied loan that is either (1) a BRRRR investment that I can refinance to a conventional loan after repairs, (2) a conventional loan with a loan downpayment, or (3) another form of loan that has less money-down upon the initiation of the loan. I am open to going into the investment with a partner and losing equity in the deal. My main goal is to expand my real estate portfolio, but I do not have extensive financing to do so.

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    Albert Bui
    • Lender
    • Bellevue WA & Orange County, CA
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    Albert Bui
    • Lender
    • Bellevue WA & Orange County, CA
    Replied
    Originally posted by @Cody Richard:

    Which method of creative financing is the best for a new investor? I'm sure it varies from person-to-person so I want to provide a few details of what I am looking for. Non-owner occupied loan that is either (1) a BRRRR investment that I can refinance to a conventional loan after repairs, (2) a conventional loan with a loan downpayment, or (3) another form of loan that has less money-down upon the initiation of the loan. I am open to going into the investment with a partner and losing equity in the deal. My main goal is to expand my real estate portfolio, but I do not have extensive financing to do so.

    HI Cody,

    If you're looking for a way to enter a deal with the least amount of capital required then you're probably going to be looking for the owner occupied financing loans like FHA or conventional home possible. Later this month, after july 28th, Freddie Mac will be changing home possible so that it will be less available for folks who wanted to use it to buy 2-4 unit properties with 5% down unless if you make 80% or less of the area median income (AMI).

    In most markets its tough to be below 80% of AMI and simultaneously qualify for this 2-4 unit property, hypothetically. The reason is because the rents from the other 3 units (assuming you're living in the 4th unit) are counted towards this 80% of AMI limit. So if you're income is 50,000 and the 3 units rental income is 36000 annualized and your local AMI is 90,000 then you wont qualify because 80% of 90,000 is 72,000 and your combined rental and salary is 86,000 (example).

    This basically leaves you with the FHA owner occupied option to keep your min down payment low at 3.5% up to 4 units.

    The down side with FHA is the property (if 3-4 unit) will be subject to self sufficiency rules which states that 75% of the rents from all units at the property, even the owner occupied unit, must exceed the monthly mortgage payment or PITI (prin/int/taxes/ins). In lower to mid priced areas the SS rule is easier to meet but on west and east coast markets its nearly impossible unless if you're in a secondary or teritary market (aka BFE).

    On the investing front (non owner occupied) you can get private or hard money financing with as little as 10-20% down options depending on folks in your specific area. These lenders may fund much quicker than your typical conventional or FHA financing but their rates are much higher and the expense or points is much higher. They are typically in the double diget rates and multiple points but the ones I've used have been able to come through with loan docs and funding/wire within 5-10 calendar days allowing me to tie up some decent properties.

    Best of luck on your investing,

  • Albert Bui
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