Bank financing or is there a better way

[Roberta James]

Hi Everyone! I'm looking to complete an application for traditional bank lending this Saturday so I can start putting a deal together on some of the researched investment properties I've found. I hear about all these creative ways to purchase with no money down and or structure a deal with owner financing...I'm so green at this and want to make sure I'm taking the best steps to reduce as much risk as possible. Before I step up for bank financing, please share your advice on your creative strategy and how you landed your first deal. I'm hoping to duplicate your success if it's truly working for you.

[Richard Redding]

If you're relatively new and can qualify, yes, go with bank financing. It also depends on what kind of investment property we're talking about. I presume hold and rent? Most banks will offer you the same terms, but smaller bank and credit unions may have more flexibility on qualifying you. I want to say on an investment property banks require at least 10% down.

Owner financing is something I would consider once you can't get any more traditional loans. They usually have a balloon payment so you'll have to refinance or sell and they generally have a higher interest rate. You'd still need a down payment for owner financing. They're good if your flipping or holding short term.

I currently have 3 duplexes and 5 houses on traditional mortgages. 

I'm on my 5th flip using hard money from a private investor. It's a high interest rate (10%) but by far the most freedom and flexibility. I can close in 10 days, house doesn't need to appraise, no monthly payments, my vendors get paid immediately, etc. Not all hard money is this way, some can be just as restrictive as a traditional mortgage.

Just this week I was approved for a guidance line of credit from a small bank, which is really exciting. Now I can do flips at 5.25% interest. It's more restrictive than hard money, but more flexible than traditional loan.

But here's the thing, I couldn't have gotten the hard money loan or guidance line when I started out. I didn't have the experience and track record. Frankly, if someone had offered them to me 10 years ago or even 3 years ago, I probably would have ended up in trouble. 

Keep it simple for now, gain experience slowly and safely until you're ready to run. Nothing wrong with traditional loans. Also, if down payment is a big hurdle, you can buy a duplex and move into one side and you'll qualify for an FHA loan which is 3.5% down. That's how I started.