How do I avoid putting 25% down on an investment property?????

Question

Hi, We have purchased 2 rental properties in Illinois and have put 25% down on each.  Where can we borrow money and lower our down payment?  We want to continue to purchase but at this rate it will be difficult.  Thanks in advance for your advice. Susan

Ben Allumbaugh · Answer

@Susan Ferris

Aside from the good advice above on BRRR, if you arent ready for the slightly higher due diligence - Take a look locally at your market for credit unions and smaller lenders. Conventional lending with some of these offers “balloon rates” at 30 year amor rates paid in 10 - at zero down in one of my markets. While this probably is just a great deal, these lenders are out there. Additionally, there is a lot of great material in the forums on pulling home equity for your primary residence for down payments (home equity loan OR a HELOC), you will be hard pressed to find one that will do that on equity in an investment property though.

Private money (family, friends, biz associates), HMLs, there is a lot of technique and strategy out there. Good luck.

Simon S Marthinsen · Answer

@Susan Ferris

I recently discovered a credit union that will loan on investment properties at 10% down at 3.5% interest. They only lend in Louisiana and Mississippi. I found them by calling every credit union in the area. There may be credit unions in your area that will have similar guidelines.

Kenneth Garrett · Answer

@Susan Ferris

You can utilize the BRRRR method.  It will require you to purchase the property then rehab it.  By rehabbing it you will force the equity in the property.  When you refinance the property if done correctly you can get all your money out and repeat the process.  You can buy the properties with private money or hard money loans.

Jake Davis · Answer

@Coral Hernandez ahh, did not know that! I always thought you could get the Hard money lenders to fund the down payment. Its understandable why they wouldn't want to though so it makes more sense. Thank you!

Coral Hernandez · Answer

@Jake Davis

No Hardmoney Lenders our not Gap funders. They provide 75%-90% leverage. The reason being is they dont want to be a 2nd on the home. And they always lend based on the asset, hence the name "Hard" tangible asset.

You should research Gap Funders in your area

Joseph Cacciapaglia · Answer

I'm assuming you are referring to multifamily investments, because for single family there are many lenders that will let you put only 15% down for investment properties. For multifamily, there is no easy answer to this question. This is the reason that both the BRRRR method and syndicating equity have become popular strategies. If you get to very large deals, there are also private equity groups that will co-invest for a large portion of the equity, but getting to that scale will take some time.

Ray Johnson · Answer

@Susan Ferris When I first started out, to avoid the 20% down for investment properties, I would move into each property as Owner Occupied only putting in the minimum down payment to secure the property. I would then move every 18 months or so repeating the process. Since the lender Owner Occupant period is 12 months, I'd meet that obligation by staying in the property for at least 12 months, and property shopping while waiting for the 12 month period to end, then move on to another property.

Bank Underwriters will want you to sign an Owner Occupant Affidavit since they will see you're buying properties every 14-20 months as an Owner Occupied property, One you affirm you'll be living in the property, you'll be good to go.

The upside of this strategy is you can acquire properties much faster, with less money out of pocket, a shorter break-even point in which you actually start making money on the property (keep in mind, if you put 20% down, you don't actually make any money until you've recouped your 20%, and all closing cost), for some people this could be many many years when you're cash flowing at $150-$300 per month, unless you do a BRRR property to recoup your cash you put into the deal to start profiting faster.

The downside is your partner has to be ok with moving every 12-18 months as a part of the plan in order to make it work. My girlfriend at the time (now wife) was good with going along with my plan, now she enjoys the benefits.

Steven Goldman · Answer

In the pandemic environment I know of no lender who will lend on a disclosed investment property at 10 percent down. I hope they are right about Hope. On the other hand the advice to buy every 18 months, hack and move leaving a tenant behind, is a good strategy, if you can not raise the down payment.  Eventually, you will build up your D.T.I. and global D.S.C. to the point that you will not be able to employ that strategy.

We have found that finding a money partner may be your best bet. You do the leg work and they provide the capital. Good luck and keep pushing.

William Rutledge · Answer

@Simon S Marthinsen

Thank you for the contact.

How do I avoid putting 25% down on an investment property?????

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