How do I go about financing a 65k buy and hold

Question

Hey all,

I set out last month to purchase my first rental property in the greater Baltimore area.  I was preapproved for a 150k property with a 25% down payment . After looking at several properties in this price range and performing cashflowing analysis, I have found that most are not that great of an investment.

There are severel town homes in one area that are selling between 55k and 75k that come close to the 2:1 ratio and would provide solid cashflow!

How do I go about financing a 55-75k property?

I have read on these forums that getting a conventional loan for such a low amount is very difficult.

I have about 50k in cash. Would going to a hard money lender for the rest of the money and paying for the house in cash be a good option?  My thought is that I could get a home equity loan on the property after closing to get some of my cash back for future deals.

Please help a new guy out!

Dawn Anastasi · Answer

I'm currently working on one for $33k at 30 years.  Remember that you can always pay more than necessary but if you have a vacancy you will be glad to have those low payments.

David Krulac · Answer

@Dave Savage  Great name, and a great post.  Often times mortgage brokers have access to lenders who are not visible to the general public.  For example an out of state bank which does not have any offices in your state but is still willing and able to lend mortgages there.  You may not be familiar with their name because they are not one of the big five and not a local or regional brick and mortar bank in your area.

Dave Savage · Answer

One other option not mentioned (small local banks and credit unions are great) is to find a mortgage broker in your area who works with many lending institutions. Typically they can find and structure loans that many of the bigger banks can't do.

Christina R. · Answer

@Garrett Fulton

I have been actively exploring the Baltimore City market for the past 7 months.  It's going to depend on the condition of the property - as you know, conventional lending will only work with a habitable property and in B'more City that word (habitable) can be very elastic. There is a very high foreclosure rate, the foreclosure process is sssllllooooowww, and there is a huge issue with lead paint lawsuits.  HMLs are lending around 50-60% ARV and sometimes less than that.  But here is the rub with that - if you are looking for cashflow as I am, you are not going to get the  buy and hold comps to support an HML loan,  The successful HML lends in the city KNOW the city and since they are hard money lenders, they can create as many "overlays" as they want on their loans.  If you are a flipper, you will be in a much better position with HML lending with the investor areas that support that exit strategy.  Buy and hold  at the 50K range, it is going to be difficult.  I don't think it's impossible because I'm still working this "niche" for lack of a better word, but it is not easy to find.

I went back are re-read your OP.  Now I see I'm not addressing your question - so consider  All I put above is for your background knowledge in the future - ha ha!    You shouldn't have a problem getting a loan.  My thought is to leverage your cash as much as possible and avoid HML at all costs if you don't need it.

Ali Boone · Answer

Usually the loan minimum is $50k, meaning the purchase price could be 1.2% of that, so what like $65k-ish? (no calculator on hand and my brain isn't working).

I wouldn't sacrifice property quality (and therefore tenant quality) for higher returns. If the nice properties won't cash flow well, it probably means the returns you are seeing on the cheaper properties are only what is written and possibly not reality. Once you get into lower-income stuff, your bad tenant risk is much higher, repairs on the properties, etc. So unless those look to want to bank you super amounts of cash flow, I'd be leery. I live in LA so I know how it feels to not be able to find returns nearby. I only buy non-local/out-of-state properties for that reason.

But, those properties may be worth it too, who knows. Just make sure to not just look at only the numbers.

Good luck!

David Krulac · Answer

We have used local and regional brick & mortar banks as well as Credit Unions, which have provided funding for many properties under $100k including investment properties and vacant lots/land.

Lisa Phillips · Answer

I always seem to have luck with credit unions. Their minimums are either none at all, or 25k. All lending institutions are in different with different minimums, so getting to know the tolerance levels of your local banking/credit unions will help you out in the future. I have one CC, Justice Federal Credit Union, that is my go to on all matters, and there are some I stay away from because lending is so stringent (meaning, they'll hold my money in deposit, but they wont lend me anything).

Jeff Rabinowitz · Answer

If you are unable to find bank financing you should be in a strong position to structure a deal that would be attractive to a private lender.

How do I go about financing a 65k buy and hold

Most Popular Reply