Purchase first Rental

5 Replies | Chicago, Illinois

Hi All, 

I just wanted to get some ideas on where I should be looking for a loan or hard money to purchase my first rental property. I've been wholesaling and closed a few deals, but I came across a property that is currently tenant occupied that is deeply discounted will have a large amount of equity right off the back. ARV is 138k , purchase price is 83k, and tenant pays $1250. The house is in great condition and only needs cosmetic work as it has been been well maintained. The current tenants have been there for over 10+ years.

I don't have great credit and it will be my first home purchase. Is hard money the way to go or should I be looking into a conventional loan? 

Any advise is appreciated. 

@Dewayne Reid I would say that conventional is always the best if you can make it work. Understand that if this property is an investment only then you will likely need to put down at least 20% since you wont owner occupy. If you can find a way to remove the tenant and move in yourself for the first 12 months you can take advantage of FHA loans which cater to lower credit and allow 3-5% down. PM me if you want a few names of mortgage brokers. Good luck!

Originally posted by @Jake Fugman :

@Dewayne Reid I would say that conventional is always the best if you can make it work. Understand that if this property is an investment only then you will likely need to put down at least 20% since you wont owner occupy. If you can find a way to remove the tenant and move in yourself for the first 12 months you can take advantage of FHA loans which cater to lower credit and allow 3-5% down. PM me if you want a few names of mortgage brokers. Good luck!

 Thanks for the advise. I'll keep you in mind if I decide to go that route. 

I see a giant red flag. If ARV is 138, and it only needs cosmetic work, why is purchase price so low?

Owners don't walk away from $50K + in equity.

Go to the recorder of deeds web site and check for liens on the property AND any others against the owner (judgment liens can be hard to find.

Something here is not right.

A couple other approaches if you're willing to house-hack a bit.

If you're willing to move in and don't own any other property, then you can take advantage of the special 5% down conventional mortgage program. The benefit of this over FHA is that PMI automatically falls off a 78% (or you can request it at 80%) LTV. And sellers often prefer conventional to FHA as there's an easier appraisal process (depending on how much work is required).

If you own a property, and you have a spouse who isn't on the mortgage, then you could explore putting this one in your spouse's name.