All Forum Posts by: Anna Swartz-Lopez

My recommendation is to start by contacting your local USDA office and asking them about their programs and activities in your local area. Some lenders work with the USDA, and some lenders don't, and right now it is especially difficult to get anything approved. Recently I spoke with a lender who has worked with USDA in the past, and he said that it often comes down to the local USDA office and how good they are at approving things. 

The way a USDA loan works is that a lender supplies the loan, but the USDA approves the project and secures a portion of the loan. That additional delay can make your project dead in the water. 

However, if you are willing to go through the extra bureaucratic steps to get approval for your project, and you are already considering low income housing, you might also consider HUD financing for your project. This article gives a good overview of HUD programs. You likely will have trouble finding a lender willing to go through the HUD process, but as this article indicates, government secured funding for construction and development projects may actually be easier to get than conventional funding at this particular point in time. 

@Jacob Lapp

Just like you can get a loan to pay for the purchase an rehab of a single family property (anything 4 units and under), you can also get a loan to purchase and rehab a multi family property. LTVs are different because of COVID, so you should expect between a 20 to 30 percent down payment for the purchase price, and then potentially you can get the rehab 100% funded. You can expect to make interest only payments for the life of the loan. 

I know that in your situation, you are trying to secure the property with the lower down payment, so in this situation, seller financing may work out better for you, at least while you are making the conversion. Just know that seller financing is usually more expensive, ie higher interest rates. But it all comes down to what you negotiate with the seller. 

@Jacob Lapp

Sounds like you are moving in the right direction! 

The lender is going to look at how many units exist in the property at the time of purchase. Another option for you may be to use short term financing (2 years) to purchase the 5 unit property, make the conversion, and then refinance into a regular home loan. 

If you have the possibility of seller financing, that may solve the problem as well. One strategy may be to use seller financing for the initial purchase and while you were making the conversion, and then refinance into a regular home loan. 

As long as the seller owns the property free and clear, you and the seller can come to whatever terms you desire. At that point it is just a matter of figuring out the seller's pain points and then being creative on how you can address them. 

Good luck! 

@Gregory Stone

I know highly successful real estate investors that got started in exactly this way. It can be a great way to get your foot in the door. 

Just be aware that as you move forward, you should look for ways to separate out your personal and business finances. Pulling equity out of your home means that if the rental goes under, your personal financial situation is very exposed. Again, this is a reasonable way to get started, but as you move forward, consider using an LLC or trust to operate your real estate business. Consider financing for rental purchases using that LLC. That builds a wall of separation between your personal and business financial worlds. The idea is that if something should happen that wrecks your business, your personal finances would be unscathed, and vice versa.

Just something to think about as you move forward. Best of luck! 

@Ashley Budyak 

Hi Ashley, congrats on moving in the right direction! Here are some things to understand when you start talking about financing your real estate investment. 

From a lender's perspective, anything 4 units and under is considered residential, and anything 5 units or more is commercial. So if you want to buy a duplex, you will be getting a residential loan. 

Now the great thing about househacking is the lower down payment to get started. Just be aware that lenders have tightened restrictions, and you will have to have outside income that supports a mortgage. 

To clarify, let's say you buy a home with five rooms and you plan on renting out four bedrooms. You used to be able to count income from those rooms in the calculation as to whether your income can support a mortgage. That is no longer the case. But, if you buy a duplex, a triplex, or even a fourplex, you may be able to secure it with the lower down payment and you should be able to count the income from the separate properties in the mortgage calculation. So if it is a separate unit that you will be renting out, you can count the income, but if it is just a room in the house, you cannot count the income toward the calculation to show you can pay the mortgage. 

Hope that helps, and best of luck! 

@Yonah Weiss

I too got a liberal arts degree that did not come with "practical" application. My degree combined the study of American history, American politics, and American literature. This experience shaped me into the person I am today, and my education taught me how to think well and express myself clearly in writing. Those are life skills that apply anywhere. Also, I am not sure that I would have developed the fortitude or desire to strike out on my own as an entrepreneur WITHOUT my liberal arts degree. 

In my opinion, a good college education is about shaping the person and NOT about "job skills." 

@Soup Nikk There's no rule involved here, I'm just saying that this is one approach that might serve you better. It really comes down to how confident you are about moving forward with your plans. None of the 3 options you proposed are bad options, so it really depends on what is your strategy. I was simply suggesting a little more caution because we are in the midst of a pandemic. But if you are confident that your market has what you are looking for, then go ahead. It's all a judgement call anyway. 

And congrats on taking action as a new investor, especially during COVID. Getting started is always the hardest part, and you are well on your way to a successful future. Happy investing! 

A good rule of thumb is to only refinance if you will save a whole point on the interest. The loan costs sneak up on you otherwise and may negate the savings from a lower interest rate. 

Option 2 makes sense, but I would find your next property first, before cashing out your current rental. 

Option 3 is not a bad option either, provided loan costs don't outweigh the difference in interest. 

So really, a better question is: have you found another property that you want to purchase? And are you comfortable taking on more properties during a pandemic? Are you confident you can get it rented out right now? 

Congrats on a successful project! If you don't need the cash, why pay for the cash? But then, it's good to have the cash available if you need it. So it really depends on your strategy, as to whether you should take the cash out or not. 

As for refinancing, a good rule of thumb is that if you can get a whole percentage point lower, go ahead and save yourself the money, but for anything less than that, what you save in interest may be outweighed by what you pay in loan fees. 

It sounds like you are in a really good position with this property, and the option of doing nothing is not going to harm you. That is a really good starting place. I would recommend that you decide on your strategy for your next property before taking your next step. Knowing your next step will help you determine if it is worth the time, hassle, and cost of refinancing or not. 

Hi Tony! Good for you for taking the first step! That first step is always the hardest. 

Yes, you need a good team, and if you are working locally, then you need to spend some time networking with real estate professionals in your area. Another approach is to find someone who is doing it already, and try to add value to their team, so you can work with somebody already in the thick of it and see how it's done. 

Picking up the phone is important. So is the reputation of the people you want to work with. Local networking groups like BNI or Rotary can be a great way to meet professionals in your area. 

Best of luck!