BALLOON FINANCING MY FIRST RENTAL- A RISK WITH A PLAN

West Orange, NJ · Member since 2018 · 93 posts · 7 votes

Hey everyone,

So i'm looking to close on my first rental property. I am looking to get funding from a private lender that does balloon financing, interest only payments at 6% for 5 years. I'm asking for a loan of $70,000. Though anything can happen, my tenants are looking to rent-to-own the property and buy it within 3 years.

I am concerned with the closing cost since I offered to cover almost all of it. With this loan, it comes with 2 points, 1% charge of loan for underwriting fees and $450 home inspection. I'm worried that I won't be able to cover closing cost, title insurance, etc. and I don't have much. What should I do? I know there has to be a way and I am looking to finalize things with the seller in the next week. Just want to make sure I can cover these closing fees.

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Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

that sounds too good to be true frankly.. caution unless this is a personal friend or family member if its a private lender you met on line.. good chance you will lose any up front money you give them

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Joe G.
Rental Property Investor · San Angelo, TX · Member since 2013 · 104 posts · 27 votes
8y
@Asher Carr
Take the loan.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
8y
that sounds too good to be true frankly.. caution unless this is a personal friend or family member if its a private lender you met on line.. good chance you will lose any up front money you give them
Podcast Guest on Show #222
JLH Capital Partners51 Review
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Asher Carr
OP
West Orange, NJ · Member since 2018 · 93 posts · 7 votes
8y
Originally posted by @Jay Hinrichs:

that sounds too good to be true frankly.. caution unless this is a personal friend or family member if its a private lender you met on line.. good chance you will lose any up front money you give them
This home is family. Step dad. I haven't made the jump because they are asking for $1100 upfront. Is that normal?
I also have another lender that can offer a blanket loan foe this home and another, just to meet requirements and get the full projects funded. I don't think that's a good idea though.
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Scarola Markson
Property Manager · Brielle, NJ · Member since 2017 · 28 posts · 8 votes
8y
@Asher Carr You can request the closing cost be rolled into the loan
1 Reply
Ramsin Jacob
Realtor · San Jose, CA · Member since 2018 · 184 posts · 71 votes
8y
Would you say the majority are like that if you meet them online first? I'm having trouble with that right now, sometimes it's like pulling teeth as I am trying to get them to prove they are legit. I'm always extra cautious from any lender online, due diligence is important...

Originally posted by @Jay Hinrichs:

that sounds too good to be true frankly.. caution unless this is a personal friend or family member if its a private lender you met on line.. good chance you will lose any up front money you give them
1 Reply
Thomas S.
Member since 2016 · 13k+ posts · 12k+ votes
8y
Don't count on your tenant buyer being able to complete the deal in 3 years. Most will fail to close.
If they can not qualify for a mortgage on their own they likely have either bad credit or zero financial skills to save money. As a rent to own seller it will be your responsibility to get them into financial counselling and nurse them along to insure that they can actually close in three years. If you let them drift along on their own they will be no further ahead then they are now and will never qualify for a mortgage on their own.
You must sit down with them and put a solud plan into place to get them on a successful financial path.
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Mike Dymski
Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
8y
If there is barely enough capital to cover closing costs, you are one sneeze away from pneumonia (vacant month, unexpected repair, bad debt, move out, etc.).
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
8y
Originally posted by @Ramsin Jacob:

Would you say the majority are like that if you meet them online first? I'm having trouble with that right now, sometimes it's like pulling teeth as I am trying to get them to prove they are legit. I'm always extra cautious from any lender online, due diligence is important...

Originally posted by @Jay Hinrichs:
that sounds too good to be true frankly.. caution unless this is a personal friend or family member if its a private lender you met on line.. good chance you will lose any up front money you give them
too good to be true terms from on line lenders or someone posting on facebook linkdin or BP ( on BP they will send you a PM)
many times are fake.. and just want your up front fee and as much as they can squeeze out of you.
usually they need 500 up front or something like that for an app fee.. they string you along and then right before closing all of a sudden they need a grand or two.. then you send that in then they say there is a problem with the file we cant close sorry bout that. and you have formally been scammed.
Podcast Guest on Show #222
JLH Capital Partners51 Review
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2 Reply
Ramsin Jacob
Realtor · San Jose, CA · Member since 2018 · 184 posts · 71 votes
8y
I agree. There are a lot of those out there. I've come into contact with several but it's easy to sniff them out. Thanks for the advice.

Hey, if you have any off-market deals in Clark County, please let me know. I am investing into that area as well. Thank you Jay.

Originally posted by @Jay Hinrichs:

Originally posted by @Ramsin Jacob:
Would you say the majority are like that if you meet them online first? I'm having trouble with that right now, sometimes it's like pulling teeth as I am trying to get them to prove they are legit. I'm always extra cautious from any lender online, due diligence is important...

Originally posted by @Jay Hinrichs:

that sounds too good to be true frankly.. caution unless this is a personal friend or family member if its a private lender you met on line.. good chance you will lose any up front money you give them
too good to be true terms from on line lenders or someone posting on facebook linkdin or BP ( on BP they will send you a PM)
many times are fake.. and just want your up front fee and as much as they can squeeze out of you.
usually they need 500 up front or something like that for an app fee.. they string you along and then right before closing all of a sudden they need a grand or two.. then you send that in then they say there is a problem with the file we cant close sorry bout that. and you have formally been scammed.
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