We are wanting to purchase our first rental property and are trying to determine the best way to finance the down payment. Or see what options are available for down payments.
The "best way" depends on several factors. Need much more info than you've supplied to make a good recommendation. That being said, negotiating $0 (zero) DP is almost always best. Since that doesn't happen often, using some form of OPM (there are many) is 2nd best IMO.
@Dan Allder how much of a downpayment are you needing? Have you researched the BRRRR method? That method is designed to allow you to purchase a property with very little out of pocket. Let me know what you think here.
@Andrew Postell yes I have researched that method but I am still confused on how or where to get OPM to finance the down payment. Do I do a HELOC? Or are there other better options ?
Not a good idea to finance a down payment. You need equity and reserves in re investing.you could do brrrr investing to build instant equity but you still need cash to buy and rehab. If you don’t have cash you need to get a partner, heloc or private lender.
@Dan Allder First of all Dan where is your photo? Start with small property. Down payments will be less. Some conventional loans are 5% down.
@Dan Allder as mentioned above 100% financing is not advised on an investment property. Now, I'll show a scenario where it's ok to borrow from others.
- You find a home that you can buy and renovate for 80% Loan to Value (LTV)
- Meaning, if the home was worth $200,000 AFTER REPAIR VALUE (ARV) and you can buy AND renovate for $160,000
- In this scenario most Hard Money Lenders will lend you 75% of the ARV
- You would then get a 2nd lien from a private party for 5%
- Then you could Refinance (3rd step in the BRRRR method) into an 80% or 85% conventional loan
- So your FINAL loan would be a 30 year fixed rate at 80% or 85% of the ARV...meaning, you paid back both of your lenders
That scenario seems a reasonable layer of risk. Now, where do you get said money? That's the ultimate question for all of us! Many of us just save...some of us found our own private lenders....some have HELOCs. I've even seen people take cash out of credit cards before (I would NOT advise doing that under any circumstance). Finding money will be one of your jobs as a real estate investor. And you will ALWAYS need to be doing it. 10 years in...you will still need to find money. 20 years, etc.
Also, the 5% down option as mentioned is ONLY for your primary home.
Hope all of this helps in some way. Thanks!