Ways Around Conventional Loans For a Young Investor

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Ways Around Conventional Loans For a Young Investor

Jason Reynolds
Investor · Allentown, PA · Member since 2019 · 43 posts · 24 votes

Hey Everyone,

Since this is my first time starting a discussion I guess I should introduce myself. My name is Jason Reynolds and I'm from Sicklerville, NJ. I'm 21 years old & I've spent the last few months learning as much as possible about real estate & would love to connect with other investors in the NJ area! 

Now, to the title of this post. Without going into too much detail, my current job has put me in a somewhat unique situation of having a enough capital to begin investing with from a signing bonus, but not having a stable or high enough income with which I think I could qualify for conventional loans. Since this may be a temporary situation, I had been telling myself to just hold off on my first rental property until I had a more stable job. However, instead of just saying I can't make a deal happen right now, I am trying to instead ask myself how can I make this work (inspiration drawn from David greene on the BP podcast). I recently found a 4-unit property at a listed price of 150,000 and total monthly rent of about 3k. After accounting for all expenses would cash flow about $450/door per month (1800 total). Because this has the potential to be such a great deal, I've been trying to find potential ways I could finance it. Here are a few options I think I may have:

1. Partner with someone who has a good line of credit we could use for a conventional loan (the only option I would have on this at the moment would be my dad... I'm sure this one would be met with criticism by most here)

2. Ask if the seller would be willing to do seller financing on a down deposit of 20-30%. 

3. Try to apply for a commercial loan. I know most commercial lenders only look at larger unit buildings, but I'm thinking with such high rents compared to the asking price there may be a lender out there willing to finance this deal.

Would really appreciate any feedback or maybe experiences anybody has on going down the route of any options I've listed, and also if anybody has any ideas which I haven't been able to think of I'd love to hear it.

Thanks!

Jason

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Mark F.
Rental Property Investor · Northern NJ · Member since 2019 · 673 posts · 677 votes
6y

Hey Jason, props to you for thinking of the RE game so early. I wish I did. On to your question, are you considering owner occupied loans at all? I assume you could still qualify for a 150k fourplex with a normal job. I did back in '11 and I didnt make a whole lot. 

Personally, I'd do whatever I can to get into a 2 to 4 unit and rent out the other rooms, and other units obviously, in your own unit to save as much as possible. At your age the sky's the limit after that. I assume your job is some sort of sales/commission based if you're saying its not stable. Good luck and welcome. 

Edit: to add, I meant FHA owner occupied loan at 3.5% down. Also, I see nothing wrong with bringing your dad in. But can you make him your bank? I did this with a family member. They loaned me my downpayment (less than 10k) and I paid them back within 6 months plus interest. I plan on approaching them again soon but for more money. I made them a passive investor essentially. Hope that makes sense.

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  • Mark F.
    Rental Property Investor · Northern NJ · Member since 2019 · 673 posts · 677 votes
    6y

    Hey Jason, props to you for thinking of the RE game so early. I wish I did. On to your question, are you considering owner occupied loans at all? I assume you could still qualify for a 150k fourplex with a normal job. I did back in '11 and I didnt make a whole lot. 

    Personally, I'd do whatever I can to get into a 2 to 4 unit and rent out the other rooms, and other units obviously, in your own unit to save as much as possible. At your age the sky's the limit after that. I assume your job is some sort of sales/commission based if you're saying its not stable. Good luck and welcome. 

    Edit: to add, I meant FHA owner occupied loan at 3.5% down. Also, I see nothing wrong with bringing your dad in. But can you make him your bank? I did this with a family member. They loaned me my downpayment (less than 10k) and I paid them back within 6 months plus interest. I plan on approaching them again soon but for more money. I made them a passive investor essentially. Hope that makes sense.

    2Reply
  • Janice Modin
    Investor · Member since 2020 · 2 posts · 1 vote
    6y

    Maybe a portfolio loan with a smaller bank? I can't speak from experience but if you can use the property itself as collateral, and show them solid numbers and a plan (contractors lined up etc), someone might bite.

    1Reply
  • Alina Trigub
    Rental Property Investor · Glen Rock, NJ · Member since 2015 · 3k+ posts · 2k+ votes
    6y

    @Jason Reynolds

    Kudos to you on deciding to start investing so early in life!

    While you presented viable options, I agree with @Mark F. - if there is a way for you to buy this property for yourself and get FHA, go for it! Alternatively, come back to your options.

    2Reply
  • John Walter
    New to Real Estate · NJ · Member since 2020 · 124 posts · 63 votes
    6y

    Welcome to BP!


    If you have enough for a deposit of 20-30%, you’ll live in a unit, and you at least have a stable job, there shouldn’t be any reason why you couldn’t get financing. 

    Finding a 2% deal in NJ is pretty hard. Confirm repair costs, verify your rents, and if everything checks out, you can always go private financing (your dad or otherwise).

    1Reply
  • Jason Reynolds
    OP
    Investor · Allentown, PA · Member since 2019 · 43 posts · 24 votes
    6y

    @Mark F. Thanks for the suggestion. I had thought of using an FHA loan, but right now I'm able to live at home rent-free so I figured if I could rent all 4 units and cash flow right away that would be better. As soon as I'm looking to move out I will definitely be using the strategy you mentioned though!

    Also, thanks to Janice and Alina for their suggestions as well.

    I think I'm going to contact some local lenders and set up appointments (I imagine I might have to do phone calls due to covid) to discuss both conventional and portfolio loan options they can offer me.

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  • Michael Noto
    Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes
    6y

    Just from experience those numbers sound a little to good for a $150k deal. Just some things to consider before jumping in.

    - Are the rents accurate? Are they actually being paid by the tenants? Do the rents include heat, hot water, and/or electricity all of which would bring down your cash flow?

    - Assuming with numbers like this if accurate that the house is not in the best area make sure to bump up your numbers for vacancy, eviction, turnover, monthly maintenance, capex, etc. These types of properties have better paper cash flow, but that typically comes with dealing with more issues day to day as a trade off. 

    - It may be $150k because there is a lot of immediate repair work you are walking into possibly? If so, do you have a plan for how to attack those?

    If this place checks out and there is nothing you are missing or red flags then I would say go for it and figure out a way to lock it down because very rarely in my career have I seen a place for $150k with $3k in rent coming in where the owner wasn't dealing with a massive amount of BS. 

    1Reply
  • Jason Reynolds
    OP
    Investor · Allentown, PA · Member since 2019 · 43 posts · 24 votes
    6y

    @Michael Noto Thanks for the response. And yes I am also pretty skeptical of those numbers. Rent seemed typical of the area, but purchase price for a property like that usually seems to be more often in the 250k range here. But it is in a relatively poor location so I figured that may be having an impact on the price. Also was wondering if maybe the landlord had some really bad tenants and was just looking to offload the property. If that was the case I may have just steered away since it's probably not a great idea to have to deal with multiple evictions on my first property. I think I would be more comfortable buying my first property in an area where I could have high-quality tenants anyways, & I know that specific town is in pretty bad shape.


    Regardless, since I posted this yesterday that specific listing I was talking about has been taken down. I was debating whether I should even list the specifics of the deal I was looking at, because I wanted the discussion to primarily be about options for financing in my situation and not the deal itself. I'll continue looking for more 2-4 unit properties with the things you suggested in mind. Thanks again!

    Jason

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