I just wanted to let everyone know that I will be closing on my first real estate investment with no money out of pocket! Here's how it went down:
The property is a 2 family with 3 and 4 bedrooms the owner agreed to do owner financing! So I called my local bank to apply for a personal loan to cover the down payment and misc costs, approved! The cost of the property is 80k with 20k down the terms for the property is 15 years @6%. The income from the building gives me 1750 a month which can be raised with a little elbow grease from one of the apartments to around 1900 giving me a decent cash flow per month. Plan on paying as much as I can to pay off the personal loan and after a year refinance the owner out after a year or 2 and use the equity to purchase my next investment, which the owner has more properties in which he would be interested in selling me with owner financing. Any thoughts on this deal?
Sounds like a good deal. How did the personal loan work? Was there collateral? What were the terms?
It does sound like a good deal. As @Rob Beland said the terms of the personal loan make a big difference. The 50% guideline would give you about $575 in monthly profit - if you have to pay most of that towards the loan it could make things a little tight.
Did you screen the tenants?
@Rob Beland it was an unsecured personal loan the terms were 84 months @11%, I know kind of high, but that should be paid off in full hopefully in a year and my bank does not have an early pay off fee.
Congrats that sounds like a solid deal..
@Jesse T. I plan on not taking or using and money from the house but will have it sit in the bank to build up and use it when necessary, such as paying off the loan asap
At 11% I would put as much cash flow as possible towards the loan.
Where else are you going to get a 11% tax free and risk free return?
Also once you get to a year of rental history I would look at re-financing the property. You should be able to do better than 6% for the rate and hopefully you can get cash to pay off any of the remaining personal loan.
thanks @Jesse T. that's the plan but we all know sometimes things don't go as planned, also the house is worth somewhere around 90k-100k so that should also be very helpful wen it comes time to refinance the loan
@Tony Lipari , while I didn't do an Owner Financing deal, I also partially purchased my first (and second) investment houses using personal loans. I say partially, because I also used personal savings I saved explicitly to buy property. The terms of my no-collateral Line Of Credit personal loans were 3yrs with interest rates similar to yours. The interest rate didn't bother me because I knew I wouldn't be holding the loans for long. I paid off the first one in about 18 months, and the second one about the same. Just picked up my third house in an all-cash deal, and I still have my personal loan LoC to use for something else.
As long as the borrower has the requisite willpower, I think it's a good route to finance your REI dreams.
Congratulations, Tony. That's an awesome start!
thanks @Randy E. I know the first year or so won't show me much return but as long as I can get a lot of it paid off or all of it and not hurt my personal expenses I'm happy
It's sounds OK to me! Congrats and good luck!
Pay that baby down! Congrats!
congrats on the deal.creativity at work
Congrats @Tony Lipari
It looks like you worked hard and smart to get into REI; hope all goes well!
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