How to Finance for First Property Investment

Question

I reached out to a mortgage company, and spoke with a consultant.

He said my best bet would be to apply for a FHA or 203k. I don’t want to take out a FHA or 203k loan.

Also, they want a 15-25% down. If I want to buy a rental property for $50-70k, that’s $12k-$17k.

I don’t have that amount of money.

Any advice on how I can finance my first deal?

Thank you!

-Eric

Robert LaPrelle · Answer

Well, if the deal is good, then I would look for partners. The down payment on my first several investments came from my father. I repaid his initial investment with interest on a 20 year amortization, and he had a 20% interest in the property. After about 5 years, I started to refinance, getting enough out to pay him back and fund my next deal.

Lots of other options (hard money lenders, etc) that I won't try to talk about because I've never done them. Anyone else want to weigh in with their story?

Robert LaPrelle · Answer

The easiest is always friends and family. Barring that, you can look for a local REI meetup.

Eric Jiwanmall · Answer

@Farrukh Madaminov

Thank you! This was helpful. Is there a place to look for partners? Obviously, I can look on this forum. Perhaps there’s a legit website that only focuses on Partnerships for REI.

Jerry Padilla · Answer

@Eric Jiwanmall

If you are planning to live in the property, FHA is going to be your best bet with a low down payment.

Conventional investment property purchases require the 15% - 25% down payment.

Many investors get started with FHA and purchasing a multi-family property and live in one unit, while renting out the others.

Nathan Williams · Answer

I think one of the best ways to begin is with FHA home hacking. If you already have a home, perhaps a equity loan?

Eric Jiwanmall · Answer

@Robert LaPrelle

I really appreciate your time, Robert. Thank you!

Farrukh Amini · Answer

In my experience, no matter what type of loan you get, there’s always a downpayment requirement. No way around it as far as I know (if there is, I’d love to learn too)

So, I agree with @Robert LaPrelle about bringing in a partner who’d be willing to finance the downpayment and closing costs. That’s what I did on my last project.

Another way to come up with funds for downpayment would be taking out a loan on your 401K if you have it, or if you already have a property look into a HELOC.

I have one more strategy that I used before but not sure if it can be implemented with downpayments. When I was short in cash for rehab of one of my properties, I applied for a credit card that offered a 0% promo APR for 1 year and used it to finance part of my rehab. It of course significantly lowered my credit score because my credit utilization was almost 80%, but as soon as I paid it off it went back up.

Good luck!

How to Finance for First Property Investment

How to Finance for First Property Investment

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