New To Real Estate Investment-Help Needed!

[Joshua Morris]

Hello!

I'll start out by saying that I'm brand new to real estate investment, so please feel free to dumb down any of your replies to my post... I'm still learning!

A little background: I'm very interested in a buy-and-hold investment strategy. I would like to ultimately build up a portfolio of rental properties that provide enough passive income to live on. The first property I plan to purchase is in the College Station, TX area within the next year (I plan on going back to Texas A&M for my Masters within the next 2-3 years). I currently live in San Diego, CA but will be moving to Texas within the next couple of years and plan to run my real estate investments out of Texas. I have a basic understanding of the principles and know the math pretty well (I'm good with asset valuation).

Here's where I'm stuck. Like most newbies, I'm having a hard time wrapping my head around the financing piece. Right now, I don't have the cash to use for a conventional 20% down payment. In all honesty, I don't even really have enough for 10%. I'd like to use as little of my own money as possible to get started. Would anybody be willing to teach me a thing or two about financing my real estate deals? What options are out there? How do you arrange financing other than from a bank?

Thanks in advance for any help!

Josh

[Elizabeth Colegrove]

Josh,

Here's the condense version of types of mortgages

Personal Property- means you are going to live in the house are our primary home usually for at least 1 year. They are traditional the lowest interest rates. VA currently has the lowest rates but due check because it is always changing.

Types of Loan-

*VA- No down payment needed, available for service members or veterans only, requires sellers to pay at least 1% of closing costs due to non-allowables, strict on their appraisal so house needs to be in pretty good condition

*FHA- 3.5%, There is an extra pmi per month, it is now for life.

Conventional- These have the least strictest appraisal guidelines. They require no closing cost to be paid on the sellers side. In my area they are the most desired by buyers

*3.5% is currently the lowest down although I heard it will be 5% starting Jan. 1. PMI does occur on loans less than 20%

Second Home- Usually for vacation homes, there are rules against using this as a rental and renting it out

*Only conventional - I have never used this type of loan. My understanding is it only requires 5% down but has the higher "investment" interest rated.

Investment Loans- These are purely for rentals or investment purposes. The rates tend to be 1% higher than personal properties, although check with a broker for an exact number. Every mortgage broker I have met requires 20% down. Closing costs cannot exceed 2%

This is just a little summary about your different loan options. I have found that the larger % rates cannot almost negate 15% of a down payment. Personally I try to use personal properties as much as possible.

My *personal rule* is that the mortgage needs to be less than $200-$300 of your modest to conservative rental amount. Since I manage our houses ourselves, this allows me to at a minimum break, usually make money and put money back into our house each month as principle. This is assuming that the house doesn't need new everything.

Let me know if you have any questions.