All Forum Posts by: Tom S.

@Michael Klinger  Just curious, what loan product did you end up choosing for this?

@Daniel M. Eads  Most lenders won't allow the downpayment to be borrowed.

As mentioned above, if you can owner occupy one of the units, the down will be much less.

@Franck Brichet  Personally I wouldn't touch this as it's too risky for you to put your money into the house, if you truly don't own it.  You mentioned the seller still has a mortgage.  You can't get clean title unless that original mortgage is paid off. 

As others mentioned, what if the seller doesn't make the mortgage payment and the house is foreclosed?  You would lose everything you're putting into the house for rehab, plus your downpayment and monthly payments.

@Abhishek Namani  I also don't see this a being a good deal, in fact, it would cash flow very negatively.

I calc about $2400 per month for just the mortgage and interest. With property taxes, insurance, HOA and misc (vacancy, maintenance, etc) you would be losing a lot per month with only $2k monthly in rental income.

@Melanie Graham  I would assume it's a seller financed 2nd mortgage.  I've done a number of similar deals as a buyer, 80% of purchase funds from the 1st mortgage lender, and 15% of the funds from the seller as a 2nd position mortgage.  So effectively 5% down on an investment property.

For simplicity, the 2nd mortgage is interest only and then the balance due in 5 years.  In the meantime you make improvements to the property and force appreciation, so you can re-finance within those 5 years to pay off the 2nd mortgage.  

Typically this has to be done with a commercial loan for the 1st, conventional financing usually don't allow this scenario.  

@Jadon Grant  As others mentioned, the least expensive way is to buy your personal residence.  3.5% to 5% down, and you'll get the longest terms and best rates.

If you hunt a bit, you may be able to get a seller financed deal.  My first SF purchase was $80k and 10% down, so $8k and about $1500 in closing costs.

Most importantly, if renting it out, make sure you have plenty of cash reserves to cover the unexpected.

Good luck!

@Jonah Slove As mentioned above, assuming zoning allows it, do you have water / sewer / septic for these 6 cabins?  I own property in VT and looked at a similar project in the past.  In particular if septic systems, VT was pretty strict on the locations so do your research for your state.

I personally couldn't find too many construction lenders and it would be easier to use a HELOC from a different property to get started, so keep that in mind as a possibly.

Sounds like a cool concept and good luck!

@Eduardo Cambil  Yes, I've done a few deals like this as a buyer.  Bought with seller financing first and then refinanced with a bank.

Quite a few questions you posted and I can't answer them all, but will summarize quickly:

- Yes, it's a solid strategy. I didn't check on the 6-12 month seasoning requirement because I would use at least a year fixing up the property some, raising the rents, and ideally forcing an increase in appreciation.  That way you don't have to worry as much about bringing money to the table for the refinance.

- Try to have a good 5 or 7 year balloon as the minimum for the seller finance (SF), and an option to extend for a fee, in case the lending environment suddenly changes, it gives you more of a buffer.  Most SF deals I came across were 30 year amortization with a 5 year balloon.  

- The biggest downside is you're paying two set of closing costs.  

- I quickly learned it was easier to go to that same bank in advance and ask for purchase + rehab financing all in one loan, one set of closing costs and it takes any the stress of worrying about the refinance.  This eliminates the need for the seller financing in the first place.  Most SF places needed work, and getting the purchase + rehab loan with a bank was much easier (check with local banks or credit unions, ask for the business or commercial loan department).

- Typical lending was 75% of ARV and the loan converted into a normal mortgage after the rehab work was complete. The bank would do the appraisal in advance so you know how much the loan will be. For me, it could be closed in my personal name or an LLC.

Hope that helps and good luck!

@Eduardo Cambil  Check with local banks or credit unions.  Yes, the closing costs will still be high and expect 20%+ down because it's an investment property.

Seller financing may be a option if you hunt around enough.  I've bought a few deals at 10% down which for a $50k property, would only be $5k down and $1k-2k in closing costs.

If you own other properties, a HELOC would be your least expensive option.

Good luck!

@Devin James  I'm straying from the question slightly, but personally if I was able to raise those funds, I would use it as a downpayment and get a loan for the rest.  In the end, the net profit to myself would be higher using a loan versus giving up an equity split, and less complicated.