All Forum Posts by: Tom S.

@Brittane Jenkins  A few other somewhat creative ways: 401k loan (if you're comfortable with that), margin account on your stock investments, seller financing for the downpayment (usually has to be done with a business or commercial loan for the remaining part of the loan).

@Elliot Angus Welcome to BP!

This scenario is entirely possible and I've done stuff like this before with seller finance (SF) properties I've purchased and then refinanced later.

That said, if you have the downpayment now, why not just use conventional financing now? With a 25% DP on a $250k property, the down would be $62.5k now versus the $100k in your scenario.  Freeing up more money immediately, and then you wouldn't have to worry about refinancing in 5 years.  And pay another set of closing costs.

If you do have to refinance in 5 years, the main concerns would be to make sure your credit is good for the refi.  Also make sure you have good documentation of your payment history.  The SF probably won't show on your credit report, but a bank lender will want to see the payment history, especially the last 12 months.

Hope that helps and good luck!

@Jeremy Hartwig  You can always pay for an appraisal to be sure.  Yes, it may go by the income approach but depending on your area, the comp approach may also be factored in.  I have a 5 unit in VT and the appraisal weighed the comp approach slightly more than the income approach, because the area was pretty rural.

@Cliff H.  Hi Cliff - is that website comes up as invalid / expired.  Is there an updated one?

Thanks!

http://vermonttwincabins.com

@Tanner Johnson  Hi Tanner - what was the end result of this?  Were you able to get funded?

@Jesse Dominguez-Castelan You should also explore one of the quickest options to this situation - reach out to the seller financing provider and see if he'll extend the balloon a few more years.

I did this in the past when my 5 year balloon was about up, it was a simple email checking if he was happy with the arrangement and would extend an additional 3 years.  Reply back was that would work, we raised the interest rate slightly and I paid for the attorney fee to update the note, which was only a few hundred dollars.

Just a thought!

@John Smith I did a similar deal like this using a small local bank that was familiar with the property.  Speak with the commercial lending department as it's 5 units.

If those are the numbers, you may be able to do a deal like 50k down from you, 50k contribution in the form of seller financing (2nd mortgage), and then the bank can provide the rest including purchase + rehab financing.  Once the rehab is complete, the loan just converts into a regular mortgage, so no need to refinance and no second set of closing costs.

As mentioned above, you haven't posted a ton of other details, so there may be a lot of variables, but I did a deal as a buyer in this fashion in the past. Good luck!

@Kevin Nelson  In addition to the above response, seller financing with under 20% down can be hard to get.  If offered, it's usually because they're asking for above market value, the property condition is poor and no one will buy it, or it's got a bunch of tenant problems.  So be careful.

A lot of times it's just doing  a lot of work to find properties, and making a lot of offers.  I did it for a number of years and typically picked up one property per year.  A few were 10% down.  One I was able to get a commercial loan and combined 15% seller financing with 80% mortgage, for an effective 5% down.

One quick note, the comment of use hard money for the downpayment and then conventional financing for the rest - this won't work.  Both lenders will want a 1st position mortgage.

Good luck!

@Jeremy Altdorfer  Just adding to the above, the rent should be on Sch E of their tax return.  I've sold rentals before and almost always was asked for a copy of my Sch E.

Also during the due diligence and inspection, try to talk to the tenants directly to confirm how much they pay, and also if there are known issues that haven't been repaired (roof leaks, frozen pipes in the same area every winter, etc).

@Tyler Kesling  Adding to the above great points, start with 2-4 units as it's standard conventional financing.  5+ units is commercial and somewhat of a different ballgame.   My largest rental is commercial and I've found many numbers are higher.  Insurance is expensive, there is a lot of extra maintenance like painting or electric in common areas that don't apply as much with smaller units.  There may be requirements to cover the trash service depending on the town.

My first commercial loan was 30% down, 20 year term (adjusting after the first 5 years).  So the payments will be higher than a 30 year and you have to account for that.  What nice though with that is you build equity quicker.

So just adding my experiences with the commercial side, from an owners point of view.

Good luck!