I am in search of funding for my first rental, I need advice.

21 Replies

Hello Marshelle Lewis, I guess to better help you we'd need a little bit more information.  What kinds of property is this?  Is it financeable, meaning will a bank be willing to lend money for its purchase?  Most banks would need the house to be insurable/livable.  But of course you do have different loans that would allow for a fixer upper type of house.  

I am in San Angelo, Texas a small town in West Texas and have had good luck with the smaller banks and that seems to be the case for a lot of people on the forums.   

I would think the first step is getting with the people you already know. This would be Private Money Lending. You could also try your local REI Meetups or REIAs to meet some investors there that would be willing to lend or better yet partner on the deal. They say it all the time on the Podcast and I'm sure all over the forums, its much better to get half of a deal versus all of no deal.

I would use either a credit repair company so that you can get a rapid rescore or go with a short term loan then refi after a year however you have to make sure that you will qualify for that refi based on credit and possibly DTI depending on which lender you go with

i was in the same situation last year. I would first focus on your credit score because that's vital not in just your first deal but your whole Investing career.

Pull your free credit report to see what's on there. Then start working on paying off the small balances you owe & try to working out a deal on the bigger balances you owe. Also look at the statue of limitations on all of your debts because some might be already about to come off by they self. 

I would not get a credit repair company to do what you can do yourself. Also Im not a lender but just so you know a FHA loan(owner occupied loan) don't recommend you to have a high credit score. So pay off a couple of old balances & you probably could qualify.

@James Nix makes a very good point about the FHA Loans and Government assisted loans in general. My very first property was purchased utilizing a VA Loan which allowed me to get into the property for zero money down. My third property was purchased for a House Hack which I utilized an FHA Loan which allowed me to only have to put 3.5% down.

You should look into FHA as people mentioned. I purchased my first multifamily with this financing. Also look into NACA, never used it personally but I know one person who closed on a deal. Heard it is a lengthy process.

If you have low credit and no savings you are definatly not positioned to invest. To be a investor you must have something to invest and it appears you have nothing.

Work on fixing your credit and saving up cash to invest while you are still learning. You have plenty to learn at this stage if you believe you can invest with out cash for a DP, reserve funds to carry the property and a source for financing. 

To be an investor you first take the time and make the effort to position yourself financially. You can not build without a foundation. Investing in real estate is not a path to success if you do not have anything to invest.

Originally posted by @Marshelle Lewis :
I am looking for ways to get funding for my first rental property. I am in Mississippi, thanks in advance

Here's what you need to do.

House hack. Find a multi family property in your area. Buy it and live in one unit and rent the other(s) to have the mortgage paid. Use FHA backed financing because the down payment requirement is low. There are probably other local grant programs that can cover your down payment. If your lender doesn't go down to a 607 score, find one that does (PM me and I'll send you a referral, we don't do FHA, but refer them out all over the country). Once you find a lender ask him/her to pull credit and the do a "what if" scenario meaning ask them to see what you would have to do to increase your score. Maybe it will jump 20-40 points by just paying off a collection or judgement or it may go up by decreasing your balances. There's a huge difference in price between a risky 607 score and a 640 or 700.

I'm going to lay this out there; buying a house is not for everyone.  You have to be financially prepared for things to break and be replaced; major things like air conditioners or disasters like a broken pipe.  It's best to have your finances in order before you take on home ownership.  Having said that, it is the best way to obtain generational wealth.

Poor to average lenders will tell you no.  A good lender will counsel you and turn that no into a not now.  

@Marshelle Lewis I feel like people are so quick to try and scare folks away from getting into investing. They don’t give you advice on how to get creative, just that “you’re not ready”. First of all, having your own cash is ideal and certainly the cheapest financIng option , but if you don’t have it there are several ways you can finance a rental purchase with other peoples money. I would recommend reading “finding and funding great deals” by Anson Young. He discusses the basics of the different types of financing you can obtain. If you’re using someone else’s money, it means your holding costs will be higher so you will need to factor that into your MAO or maximum allowable offer. This means you’re going to have to find a great deal, which are hard to come by but not impossible. I’d recommend the BRRRR strategy here. If you truly have a fantastic deal, I bet you can even find people on bigger pockets that would want to finance it. Best of luck!

@Marshelle Lewis

There is not one 'credit score' that every lender uses. The free score you see on credit karma and bankrate.com is the vantage III score which uses a newer algorithm started by credit reporting agencies. Landlords that use Transunion smart move are looking at the vantage III score; the vantage III score heavily penalizes heavy users of credit like those of us that use personal credit to finance small businesses. (I often have more than a 100 point difference in my vantage III score and my FICO 8 score which priortizes payment history). Small local commercial bank lenders  (I'm told by our bank) often use the FICO 4, while auto dealers have a special FICO (10?) that they use, and I've read that the most common score used by revolving credit lenders is the FICO 8 which you can get at discover.com. At one point I had an approved bank loan for a million dollars and my vantage 3 score was so low while I was doing a bunch of reno's that I wouldn't have rented myself an apartment ;). Know which score is low (and why).

Originally posted by @Thomas S. :

If you have low credit and no savings you are definitely not positioned to invest. To be a investor you must have something to invest and it appears you have nothing.

Work on fixing your credit and saving up cash to invest while you are still learning. You have plenty to learn at this stage if you believe you can invest with out cash for a DP, reserve funds to carry the property and a source for financing. 

To be an investor you first take the time and make the effort to position yourself financially. You can not build without a foundation. Investing in real estate is not a path to success if you do not have anything to invest.

With all due respect, I totally disagree with you when you write that @Marshelle Lewis "appears you have nothing."  This young lady has the drive to ask for help and mentorship from people that have either been there, have worked with folks that have been there or know how to move her forward.  She obviously has the brains to not jump in lake without taking the proper precautions or asking for stewardship.

When investing, it's certainly better to have a solid foundation, but there are so many loan products, grant programs and other means of obtaining real estate rather than renting (that incidentally could put her in a better position from a taxable income and monthly payment stand point than renting) that she would be foolish not to buy.  It's not like she's trying to buy a 10 unit apartment building.  She needs a place to live and house hack.  That will get her going along the path to wealth and prosperity.

Is it riskier to buy when you don't have a pile of cash in the bank?  Sure it is.  Who among us would be where we are if we waited for the "right time"?

Stephanie

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