Creative ways to get first rental

[Romario Nicholas]

Hi everyone, i am researching creative ways to get my first rental property. I have a W2 job that would take me about 1-2 years to save up for a downpayment on a 200k home in charlotte. But that would take such a long time.

Has anyone ever used government grants to help purchase their first rental? 

I want to provide affordable housing options to low income residents in charlotte, and i think this will give me the learning i need to get into real estate. 

Any helpful ideas would be appreciated

[Eliott Elias]

Utilize seller finance 

[Jon Puente]

Hey Romario, government grants and DPA programs are oftentimes used for Owner-Occupied homes, meaning you would have to live in the home.  In most cases you will need 15%-25% down to buy an investment property.

1) If you want to buy a 2-4 unit, then you can do an FHA loan with 3.5% down and rent the other unit(s) out.

2) You can do either a cash out refi or HELOC on your primary and use those funds for the DP.

3) You could partner with someone who has a Real Estate LLC (big or small) and go in together to come up with DP and purchase using a DSCR loan. You need great credit and 6-12 months of reserves for this type of loan.

4) Seller finance, where you negotiate the entire deal upfront with the sellers themselves, including purchase price and terms, and then have a title company close the deal for you.  I have a real estate attorney who is great and could help you close efficiently.   

Just some options for you! Let me know if you have any other questions.

[David Kelly]

Are you a first time Homebuyer?  There are available grants that can be used.  One of which allows for up to $22,000 towards down payment and closing costs.  

[Ty Ash]

Hi @Romario Nicholas!

I'd recommend that you keep/start learning! This can be done through Podcasts, Books, and Mentors you find by networking.

As already mentioned above, a house hack will probably be one of the best strategies for you to get started and take action while giving you a great return because of the low % down needed to get started (as low as 3.5% with FHA). Once you get to this point, make sure to run your numbers for both while living in the house hack (lowering your living expense to less than what it would be to rent in your area) and post move out where you need to be at least break even after accounting for your monthly payment + maintenance, capex, vacancy, property management.

Here's a great resource right here on BP:

https://www.biggerpockets.com/real-estate-investing/house-hacking-strategy

Best of luck getting started! Here for you with any questions you have along the way!

[Romario Nicholas]

thank you everyone for your feedback!

[Wale Lawal]

@Romario Nicholas

The traditional path to buying an investment property is to save money for a down payment, then get a mortgage to cover the rest. But that’s not the only path. From time to time, I get questions from the landlords who use Avail about how they can finance a rental property if they don’t have enough in the bank for a down payment.

Here are the four strategies to consider.

1. Seller Financing
2. Partnerships
3. Government Programs
4. Retirement Accounts

Read this article for more information https://www.forbes.com/sites/f...

Good luck!

[Drew Sygit]

@Romario Nicholas you can buy a 2-4 units with 3% down, and ask for 6% seller contributions to cover most of your closing costs.

For a $200k house, this might only be $6000-$10000. 

Why would it take 2 years to save that up?

[Romario Nicholas]

is that assuming this is my primary residence? Im in charlotte, so there are no 2-4 unit homes available in the area that i could use as my primary residence

[Roshan Bhula]

@Romario Nicholas, great suggestions from the group. I was in your shoes a few years ago, working a W2 and seeking my first rental. At that time I had money saved but wasn't in a position to dump 20% into a rental, but I found a deal and used a HELOC to fund the half of the downpayment, knowing I could pay the HELOC off over the next 8 months with my W2 income. Risk was low in this scenario with my promotional interest rate at 1.5% (not as easy to come across now), but just consider the cost of money if you do it that way.

I'm an active broker in here Charlotte and, I'm seeing it first hand, there are plenty of sellers willing to go the seller financing route. It's just matter of determining what's important to the seller and coaching then on how it may be a win-win to go that route. Happy to chat through it more and see what may work best for you. LMK.

[Jewel B.]

Quote from @Roshan Bhula:

@Romario Nicholas, great suggestions from the group. I was in your shoes a few years ago, working a W2 and seeking my first rental. At that time I had money saved but wasn't in a position to dump 20% into a rental, but I found a deal and used a HELOC to fund the half of the downpayment, knowing I could pay the HELOC off over the next 8 months with my W2 income. Risk was low in this scenario with my promotional interest rate at 1.5% (not as easy to come across now), but just consider the cost of money if you do it that way.

I'm an active broker in here Charlotte and, I'm seeing it first hand, there are plenty of sellers willing to go the seller financing route. It's just matter of determining what's important to the seller and coaching then on how it may be a win-win to go that route. Happy to chat through it more and see what may work best for you. LMK.

 Hi Roshan. I'm definitely interested to know more about determining what's important to a seller and coaching them on how it may be a win-win to go the seller financing route. I'm also curious about the same but with subject-to financing.

[V.G Jason]

Quote from @Eliott Elias:

Utilize seller finance 

 Have you done this before? I'm looking at options of these. I have some different ways I'd like to structure it, I am just am unsure if that's mitigated at the state level or if it would be legal. One of them would be a tiered rate structure. Do you usually put the same down and ask the seller to beat the lender's rate?

[Wale Lawal]

@Romario Nicholas

Owning a rental property takes extensive research and decision-making to determine if it’s a viable investment for you. Aside from learning the pros and cons, see if you are ready to make your first rental property investment by preparing a business plan, conducting a rental market analysis (RMA), and reviewing landlord-tenant laws. Consider working with a property management company, especially if you’re a first-time investor. Set yourself up for success by reading more tips for buying rental property listed below.

Read this article for more information https://fitsmallbusiness.com/b...

Good luck!

[Jared Hottle]

As many have said this is why house hacking is so powerful. If you are able to live in the house and rent out rooms or buy a duplex in live in one side you can get in the property for 3-5% down. Live in it for a year and do it again. Do this 5-10 times and in the meantime be saving up for a 20% downpayment on another investment property. Is it inconvenient to have someone living with you, yes but the more you are willing to delay satisfaction the more long-term payoff.

[Bradley Dosch]

Hey Romario, there's no need to get creative in this case. You have a good W2 job and could probably save up a 3-5% down payment rather quickly. Use your job and income to buy a house hack with a conventional or FHA loan. Keep it simple!

[Tom O.]

I think the easiest way is the NOMAD approach where you buy 2-4 units with an FHA loan, taking advantage of the low money down approach. Live there a year, rehab, rinse and repeat.

There are ways to get your first home with no money down. VA loans, USDA loans and first time buyers with good credit can take advantage of a program with a name that escapes me at the moment.

[Princess Small]

Hey @Romario Nicholas! You're in Charlotte. We got access to Bank of America's Community Affordable Loan Solution program. https://www.bankofamerica.com/...

I'm not 100% sure I'll use this program, but I'm still taking a qualifying course so that if I decide to pull the trigger, I won't have to wait on this.

I agree with @Bradley Dosch. Keep it simple your first time. At most, if you find a seller finance deal for a low/no DP, cool, but otherwise...KISS. :-)

[Patrick Collins]

Hey @Romario Nicholas! I was in a very similar situation to you and was struggling how to fund and structure a deal. I also live in Charlotte and grew up here so I know the market pretty well. I have been able to see it grow over the past 10 years so I'll let you know what I think and have learned.

Even though knowing what to look for is important, knowing what not to look for can help narrow your search tremendously. So, I'll start with that. 

- Don't look for a 2-4 unit property in CLT. They are very expensive right now and the cheapest one is around $400k so it'd potentially take twice the amount of time to fund it traditionally.

- Don't necessarily jump at the first "low" down payment option because even though FHA is 3.5%, there's ways around CLT and NC in general to get more assistance with down payments. @Princess Small provided a great example

- Private money will be hard to raise if this is your first deal. Ask family and friends but it's not always the best option.

Now for options to explore!

- Definitely search for creative finance options! They give you the potential to bring less money to the closing table, avoid bank and agent costs, and can lower your monthly payments in comparison to traditional financing

- For traditional options, look into doing a conventional loan with NC Housing Assistance or 203k renovation loan. The NC Housing tool is very powerful because it gives you $8,000 in down payment assistance and doesn't charge you any interest on it (I can explain more of how it works over the phone). The 203k renovation loan is a process where a GC and appraiser comes to the property you're interested in and gives you a loan based on the ARV of that property. Both can be very useful in your situation.

- Look for another young investor or convince a buddy to house hack with you. Even if it's a 2/1 house, you can still make this work in your guys favor. Create an LLC and pay yourselves rent every month. 2 reasons for this: 1- it will continue to increase your credit score assuming your financial responsible with everything else. 2- Once you save enough, you can go to a lender in the future and show that your LLC is a revenue generating business that you can get a loan on.

I hope all this helps! There's definitely more details on each of these aspects so feel free to reach out and I can help walk you through some options!

[Laura Shinkle]

I would agree with a lot of what is said here! 

Since you have a W2 income, I'd recommend buying a house, live in it for a year, then rent it out. That allows you to put as little as 3% down and you can get grant money if you qualify for it. I have lenders that have worked a lot in that space so are familiar with the guidelines and the loopholes that need to be jumped through. Not everyone is, and can make that loan process stressful. 

While living in the house, you can househack, basically get a roommate. That cuts your living expenses down considerably, allowing you to save up for the next property. 

Then rinse and repeat. 

It's an easy way to accumulate properties for low money down. 

That experience will also help you utilize more creative financing in the future. Most partners would want to see some experience before they back deals with you. 

Avoid looking for multifamily in this market. I love the concept, but the numbers don't seem to make sense and there aren't many to find here in this market. You may get lucky and find one, but most likely you'll be banging your head against a wall. 

Also, there's other conventional types of loan similar to a 203k without having to be FHA and all the frustrations/limitations that comes with. I have a lender I can connect you with if you're interested in that.

Let me know if you have any questions, I'm happy to chat more about your specific circumstances/needs. Best of luck!

[Dusty Eaton]

@David Kelly where would one find info on this grant?

[Laura Shinkle]

@Dusty Eaton for NC specifically, I believe he is talking about grant through the NC House Finance Agency. Honestly, the website doesn't have all that much info (nchfa.com). Best source would be to talk to a lender who has used done loans through those programs before, knows the criteria to qualify, and knows what red tape to expect. If you'd like to talk to one, let me know and I can connect you. There's a lot of grant programs out there, not just the one mentioned.