Idea on first deal.

[Deandre Brown]

Hey, good afternoon/evening everyone. I am a new investor and have been exploring deals in a few markets outside my area for the past month and a half. While researching and evaluating homes, I had an idea for managing the down payment and emergencies for the first property.

When I find a property with good cash flow, I could use a private money lender (PML) to cover the down payment and closing costs. The cash flow would then be used to repay the PML, possibly faster if the home appreciates in value. For emergencies, I could move money from my 401k to an IRA to cover vacancies and capital expenditures.

What are your thoughts on this approach?

[Jason Wray]

Deandre,

As a Banker I am not a big fan of borrowing money for the down payment unless its from family or a close friend. PML or most private lenders do it for a profit so the rate has to be calculated into the deal. If you own a primary home have you thought about doing a cash out refinance. If you do not own a primary I would suggest buying a primary and getting a 2-4 unit to start off with a multi door cash flow.

If you buy a primary you do not need a PML you can get 100% financing under a few programs or a DPA. Then is cash is tight find a property where the seller is motivated to sell or maybe it has been sitting on the MLS and has a high DOM. That way you can ask for 4-5% Seller credits to pay for the closing costs.