Any responsible way to recoup down payment for Investment Property?

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Any responsible way to recoup down payment for Investment Property?

Kyle Pettit
Residential Real Estate Broker · Wenatchee, WA · Member since 2012 · 25 posts · 3 votes

My question is this: Is there any reasonable way to recoup the %20 down payment my bank is requiring for an investment property I'm looking to purchase. I'm new to RE investing and looked through the forums and didn't come across anything that matched my question.

The deal is this: The property is %85 complete (new construction). It will have an ARV of approx. $68k (county assessment), and approx $75k (comp. market value). The owner has accepted my offer of $46k. The hold up for me is the banks in my area are all small community banks requiring %20 down payment for either type of loan, personal, construction, commercial. I plan to use the property as a rental as it will be a great cash flow property.

What would you experienced folks suggest?

Thanks for your input!

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Tim Delp
Real Estate Investor · Jacksonville, FL · Member since 2012 · 109 posts · 22 votes
13y

You can typically look at a cash out refinance based upon appraised value once you have owned the property 1 year. Also be careful about always looking to take all your cash investment out of your rentals, good way to get over leveraged, nothing wrong with having a little skin in the game and some good cash flow to protect you when markets change.

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  • Tim Delp
    Real Estate Investor · Jacksonville, FL · Member since 2012 · 109 posts · 22 votes
    13y

    You can typically look at a cash out refinance based upon appraised value once you have owned the property 1 year. Also be careful about always looking to take all your cash investment out of your rentals, good way to get over leveraged, nothing wrong with having a little skin in the game and some good cash flow to protect you when markets change.

    1Reply
  • John Evan Miller
    Foreclosure Specialist · Miami, FL · Member since 2011 · 153 posts · 24 votes
    13y

    Another method is to get a home equity line of credit (known as a HELOC) or take out an equity loan on the property. You will have to check to see how much equity you can pull from the property since lenders do not like loan 100% LTV these days.

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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    13y

    A HELOC on an investment property? Have you actaully done that recently, John Evan Miller. I thought that was like the ghost of Christmas past.

    Plan to hold it for a year. Then you might do a cash out refi at 75% LTV. County assessment is useless (that's for taxes), but if you comp based estimate of $75K is accurate, you might be able to borrow about $56K less about 2-3K in costs. So that would get you back your $46K purchase plus a bit more. Better if you do some work on the property to justify the change from $46K to $75K.

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  • Theresa K.
    Real Estate Broker · San Diego, CA · Member since 2012 · 104 posts · 20 votes
    13y

    Jon Holdman: I applied for a HELOC on an investment property yesterday. I keep thinking there is some catch to it. I guess I'll find out in a few days.

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  • Jon Klaus
    Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes
    13y
    Originally posted by Theresa K.:
    Jon Holdman: I applied for a HELOC on an investment property yesterday. I keep thinking there is some catch to it. I guess I'll find out in a few days.

    Please keep us posted, Theresa. Banks are continuing to loosen up, so maybe you will get this done.

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  • John Evan Miller
    Foreclosure Specialist · Miami, FL · Member since 2011 · 153 posts · 24 votes
    13y
    Originally posted by Kyle Pettit:
    I plan to use the property as a rental as it will be a great cash flow property.

    Jon Holdman, since he is planning on holding on to the property as an investment rather than flipping it a year later, there would be more of an opportunity for a HELOC. I never meant to imply it was a snap to get but rather an option other than a full refi.

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  • Rob K.
    Investor · Southeast, MI · Member since 2012 · 2k+ posts · 1k+ votes
    13y

    Within the last couple years, I got two HELOC's from Huntington Bank and two from Wells Fargo. (Wells Fargo will do up to four, so I can get two more if I want.) These were on investment properties. The LTV's were low. I think 65 or 70%. Also, I had to own the house for at least a year. Otherwise, they would base the value on the purchase price.

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  • Kyle Pettit
    OP
    Residential Real Estate Broker · Wenatchee, WA · Member since 2012 · 25 posts · 3 votes
    13y

    I thank you all for your input! Very helpful and much appreciated.

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  • Curt DavisBusiness Member
    Flipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
    13y

    Banks are not doing HELOC's on investment properties so this will not work. From the initial post the person only has enough for the 20% down payment so paying cash for a cash our refi is not an option. There is no way to get your 20% back, its part of the normal purchasing cycle. Unless you know how to structure a deal using hard money where you can do little out of pocket then its not going to work. That is the method I use on all my properties. Good luck

    Curt Davis - KAIZEN Realty538 Reviews
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  • John Evan Miller
    Foreclosure Specialist · Miami, FL · Member since 2011 · 153 posts · 24 votes
    13y
    Originally posted by Curt Davis:
    Banks are not doing HELOC's on investment properties so this will not work. From the initial post the person only has enough for the 20% down payment so paying cash for a cash our refi is not an option.

    Rob K mentioned that he got two HELOCs on investment properties over the past two years, so there must be some lenders willing to write a HELOC on an investment property.

    Yes, it is true at you would need to have at least a 20% equity position for a HELOC (or pretty much any conventional loan these days), but let's say the buyer/investor purchases a discounted property and then rehabs it. This will bring the property back up to market value. If the current market value of the property is greater than the purchase price, then there should be equity above and beyond the initial 20% down payment. That would be the amount pulled out in a HELOC. If I am missing something, let me know.

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  • Theresa K.
    Real Estate Broker · San Diego, CA · Member since 2012 · 104 posts · 20 votes
    13y

    Jon Klaus: Here's the update - Wells Fargo said they won't do a HELOC in first position on an investment property. They will do a cash out refi in first position. The cash out refi would cost about $3K+ in fees and closing costs.

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  • Tamara R.
    Investor · Vienna, VA · Member since 2011 · 158 posts · 45 votes
    13y

    I was able to get a HELOC on a rental property from Wells Fargo a couple of months ago. However, I own the property free and clear and they would only loan me 60% of the appraised value.

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  • Tamara R.
    Investor · Vienna, VA · Member since 2011 · 158 posts · 45 votes
    13y

    ALso, they absorbed the entire cost--the only catch is I have to pay them $500 if I close the account before 2 years is up.

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  • Theresa K.
    Real Estate Broker · San Diego, CA · Member since 2012 · 104 posts · 20 votes
    13y

    Tamara R.: Mine is free and clear also. We bought this property in Feb 2012 so maybe it isn't seasoned enough to meet their underwriting requirements.

    I wanted the HELOC for the same reason as you - no cost.

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  • Tamara R.
    Investor · Vienna, VA · Member since 2011 · 158 posts · 45 votes
    13y

    @ Theresa K.--that could be. We have owned this property over 15 years.

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  • Homer Tipton
    Real Estate Investor · Oklahoma City, OK · Member since 2011 · 14 posts · 0 votes
    13y

    If you have another house or other asset you could ask your bank if they will let you use it for collateral instead of using your cash.

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  • Rob K.
    Investor · Southeast, MI · Member since 2012 · 2k+ posts · 1k+ votes
    13y

    Theresa K. Wells Fargo will use the purchase price as the current value if you pourchased less than one year ago. After one year, they will do a drive by appraisal.

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  • Kent Anderson
    Note Investor · Black Forest, CO · Member since 2011 · 29 posts · 38 votes
    13y

    Kyle, good thinking.

    Here is an valid alternative purchasing technique to consider: making your offer “Subject To the 1ST “.

    Yes, there are risks mentioned later but it is a great way to buy real estate. You will save thousands of dollars in loan expenses, you are not personally liable for the debt and the debt will not show up on your financial statement… to mention a few benefits.

    Huge possibilities for servant leadership buy provide many benefits to seller via partial interest back to seller for participating, saving and maintaining their credit, on and on sub to the seller’s needs.

    Yet, most importantly, if you are buying with SD IRA money, the financing is acceptable as long as the property is the sole security for the loan.

    As for SD IRA purchases, note that there may be other may be other Disqualified Transaction or Disqualified Party rules to violate but your plan custodian/administrator can help you eliminate that risk.

    So do your research and due diligence, you do not want to blow your entire plan because of one transaction.

    There are others risks but this is just an idea that needs researched so do thorough due diligence before you jump in.

    The most obvious risk, the lender in 1st position can call the loan if the property is not owner occupied so you need an exit strategy for that scenario.

    Read your deed of trust beginning to end and Search for the word “acceleration” and you’ll learn a bunch.

    If the 1st is a local bank do NOT buy sub 2. 99% of the time local bank will call the loan. Although if it is a “To Big To Fail Bank”, give the technique very serious consideration.

    Sub 2 buying is a full two or three-day seminar so again, do your due diligence and research the topic to the hilt and it will soon be the only way you buy property.

    Blessing to your effort, Kent

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  • Kent Anderson
    Note Investor · Black Forest, CO · Member since 2011 · 29 posts · 38 votes
    13y

    Kyle, one more thought, and i'm sure i'll get ripped on this one by the institutional men and women but:

    It is Bad Strategy to use the equity in your home (HELOC) to buy investment property or discounted notes.

    If the deal goes up side down and you can't pay off the HELOC lender WILL foreclose on your residence.

    Don't blow a perfectly good marriage for one deal.

    It ain't worth it. You don't need the deal that bad. Take your time, plenty of owner financed or sub 2 deals out there.

    OK, maybe a HELOC for very very small transactions (eg. 4k dwn pmt) where you have quick capital to easily pay off the HELOC.

    Hope that helps, Kent

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