Funding a rental

[Marcello Saldana]

I’m getting ready to start my real estate investment career in San Antonio, Texas. I wanna start small with a rental home. Then, just build you my portfolio. However, I’m torn between getting a loan or saving the money to fund the rental home. I do know the advantages or disadvantages of getting a loan and paying cash. Does anyone have any advise as to how they bought their first rental?I have about 15k saved up for investment property. Thanks so much.

[Seth Teel]

@Marcello Saldana

You're likely going to need more than $15K to buy a property whether you go conventional or use hard money ($15k may be sufficient if you buy owner-financed or sub2).  Otherwise this limits you to purchasing a property for +/- $75K (conventional).  No room for repairs & closing costs, or you're buying a property in a low rent area which often means high turnovers and rent chasing.   If planning to use hard money, most lenders want to see at least $25K - $30K liquid and you'll have to front the money for any repairs before taking your first renovation draw.  

I bought my first three rentals with FHA loans. They were all duplexes and I lived in one side and rented out the other. FHA only requires 3.5% down and you only have to live there 1 year; and after two years of reporting the rental income you can repeat the same model.

Finding an owner-financed property that can rent for 300+/month over your monthly mortgage may be an option.  Most owner-financiers here in SA require down payments between $5K & $10K.

Lastly, you could buy properties "subject-to" their existing financing. This is a good way to pick up property with little (or sometimes zero) cash outlay. For example, I just closed on a property "subject-to," the owner owed $65K, the property can rent for $1300/month, I paid the owner $1500 to deed me the property and I take over payments "subject-to" the existing financing. In this instance, I will likely do some cosmetic updates and list on the MLS for sale, but if I wanted to I could rent the property as-is. You should read extensively about this prior to using this strategy and I would also consult a RE lawyer. I can make a recommendation if you like.