I've been a BP "lurker" for several months, but now have some money to invest and would like some expert feedback.
I am looking at a triplex in a good neighborhood, in a small "artsy" town in central New York. Rents and median incomes tend to be higher here. The triplex is in excellent condition, no rehab necessary and is priced at $69,000. It is 2,289 sf with three units - a 2 BR, and two 1 BR. The house is an older home built in 1880, but it has been maintained well. The tenants pay $800.00, $700.00 and $650.00. Landlord covers utilities. According to the BP Rental Calculator, allowing for 10% maintenance and vacancy - it should generate approximately $450.00 positive cash flow.
My issue is the HM it will take to get this property. My lender requires 35% down, 3 pts, and $1,495 loan fees with (ouch) 17.99% interest. They have a couple of different programs - one is a 10/3 program and the other is a 5 year fully amortized loan that effectively will wipe out most of the positive cash flow for those 5 years. So - do I take the risk of the balloon payment after 3 years (I have to confess I am not comfortable with a balloon lurking on the horizon given how markets can change on a dime these days (or so it seems)). Or does fully amortizing the mortgage and eating the cash flow now for future cash flow make more sense. I am working on restoring my credit after a divorce - but it is sufficient for these folks to loan to me. I have a great monthly income and can easily cover the 5 year amortized payments - but, would be retiring at the end of that period anyway.
I hope I have explained this clearly - but please let me know if I haven't - and which route you would take in these circumstances.
Thanks very much in advance.
Hello @Chana O'Leary , I'm under the impression you don't qualify for a conventional mortgage because of your credit score? If this is the case, and you have 35% to put down, it may be worth visiting some small local banks. They may do a manual underwriting and offer a higher rate mortgage.
borrow from however many people u have to, just don't go to a hard money lender.! start calling banks today
Thanks @Kenneth B and @George P for your comments. I have a bit of an update from the lender. They are starting a program with slightly better terms - and a bit more stringent requirements upfront. Essentially, the terms I quoted in my first post were their "no doc" loans. Their new program is 30 years, 7/1 - 9.5% interest with 25% down, credit score of at least 630 and proof of six months reserve funds for mortgage payments. Slightly better. Again, I qualify for this program as well. I DO like the idea of "manual underwriting"! Could you explain why a bank would want to do that? :-) Thanks again for your assistance!
Your last update about the loan details is what I did on my first 2 properties except they are 15 yr notes and I got it for 20%. One thing to consider is if you have a friend aka potential partner or family member that has access to a line of credit you could utilize that. I just purchased a duplex and plan to use my partner's line of credit to purchase and rehab. Line of credit from my bank cost $270. So for a $55k duplex (my price) it's going to cost me (splitting in half) $135. After one year the bank allows re-fi and then you pay off the line of credit and roll into a conventional style loan. This way you'll bypass high closing cost along with having to put 25% down. you'll still closing cost with the attorney but no bank markups. Now the key is to find someone who can get a line of credit but if you ask around and market it'll probably find you. I did this and had a guy say, if you need the money let me know. So he brings the money to the table, I bring the deal, knowledge, property management, tenants, etc. and we split 50/50.
50% of something is better than 100% of nothing.
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