Starting Out
Market News & Data
General Info
Real Estate Strategies
Landlording & Rental Properties
Real Estate Professionals
Financial, Tax, & Legal
Real Estate Classifieds
Reviews & Feedback
Updated about 7 years ago, 09/04/2017
first financing- hard money/private lender or traditional loan
Im new to real estate and have been looking at different ways of getting funding and am not sure which method to pursue. Any input would be great and any dos and donts. thanks for time everyone have a great day and happy investing-luke
What kind of project are you looking to do?
have been wanting to get into small multi-family(duplex or triplex) and house hack the one unit and rent the rest
Hello Lucas you can either go conventional or hard money. If you go conventional you have to jump through a lot of hoops and with hard money you are going to have higher rates. There are positives and negatives to both. Are you looking to invest in New York?
thank you for reply, i am looking to invest in upstate NY. My main reason for looking into hard money lenders was because i was thinking about getting into brrrr deals to build up my properties faster just not sure if it was to high risk to start off with as i don't have all that much equity and funding as of now in case something in the project didn't go as planned.
- Residential Real Estate Investor
- Kansas City, MO
- 4,833
- Votes |
- 10,026
- Posts
I wrote an article on financing methods for buy and hold a while back that you might find helpful: https://www.biggerpockets.com/renewsblog/2014/10/29/the-ultimate-list-of-ways-to-finance-buy-and-hold-property/
thanks for the article Andrew it was very informative and helpful, id like to learn more about FHA loans. I've looked into them in the past as they would work well for me with low money down, i heard before that you had to pay monthly loan insurance(think it was around $100) and got nervous about it cutting into my cash flow to much. I suppose if the #'s worked with all expenses included it wouldn't matter much,and I'm pretty sure loan insurance drops after 5 years as well. thanks again think i will look into them some more.
Howdy @Lucas Hallenbeck
What you are going to find is it is difficult to achieve positive Cash Flow while using the House Hack strategy. You are only receiving 50% (Duplex) or 66% (Triplex) of the potential income while you are living there. If you can get into a 4plex you have a greater chance of some positive Cash Flow. Many investors that use this strategy accept they are basically only having their mortgage payment paid by the tenants.
It is a good strategy in order to get into the game. You must conduct 2 analysis with this strategy. First as if you are not living there to determine if it will Cash Flow. Second, with you living there to determine if you can afford the remaining expense amount with your current income.
As far as the private mortgage insurance (PMI) it is required if you have less than 20% equity in the property. When you purchase with an FHA loan and a 3.5% down payment you will need to pay PMI until your equity increases another 16.5%.
Great information john. Recently i have been leaning towards a 4 unit for the reasons you have just listed and thanks for the double analysis tip will definitely help keep things organized for me. For the FHA loan after you build up the 20% equity there is no longer PMI? Didn't know that and it would be great news. Thanks again John happy investing
You also said you would like to do the BRRRR strategy. Not sure if you are aware that FHA has a home improvement loan program. It is a FHA 203K improvement loan. It allows you to purchase and do renovations in one loan. I believe it is up to $35K in Rehab costs. It works the same as the regular FHA loan with 3.5% down payment. However, all work must be completed by a licensed contractor. You could use it to force equity appreciation (similar to BRRRR). Might help to reach the 20% equity threshold.
Definitely research both loan types and the requirements for each. Lots of red tape. Just something to think about.
@Lucas Hallenbeck you could also look into HomeStyle Fannie Mae loan if you aren't purchasing a place that is turn key. Similar to the 203k loan, but investors are allowed incase you decide not to house hack.
Originally posted by @John Leavelle:
Howdy @Lucas Hallenbeck
What you are going to find is it is difficult to achieve positive Cash Flow while using the House Hack strategy. You are only receiving 50% (Duplex) or 66% (Triplex) of the potential income while you are living there. If you can get into a 4plex you have a greater chance of some positive Cash Flow. Many investors that use this strategy accept they are basically only having their mortgage payment paid by the tenants.
It is a good strategy in order to get into the game. You must conduct 2 analysis with this strategy. First as if you are not living there to determine if it will Cash Flow. Second, with you living there to determine if you can afford the remaining expense amount with your current income.
As far as the private mortgage insurance (PMI) it is required if you have less than 20% equity in the property. When you purchase with an FHA loan and a 3.5% down payment you will need to pay PMI until your equity increases another 16.5%.
I've been reading in the forums lately that with FHA the PMI now remains for the life of the loan unless you refi out of it. However, I'm still trying to gather concrete information on the topic.
I'm pretty sure this is current. You must pay PMI for a minimum of 2 years and up to 5 years. After that if you have reached 20% equity you can request, in writing, that PMI be dropped. Once you hit 22% the Lender is required to drop it. An appraisal may be required to confirm your request.
Of course if you Refinance out of the loan it will also go away.
Originally posted by @John Leavelle:
I'm pretty sure this is current. You must pay PMI for a minimum of 2 years and up to 5 years. After that if you have reached 20% equity you can request, in writing, that PMI be dropped. Once you hit 22% the Lender is required to drop it. An appraisal may be required to confirm your request.
Of course if you Refinance out of the loan it will also go away.
Thanks for clearing that up.
I just recently payed off my FHA. I tried to get the bank to drop PMI when I reached the 20%. I was told I had to wit the 5 years. When I reached the five year mark they automatically dropped it without any request. Bank was Wells Fargo. Prior to paying off the house I looked into refi. and was told by the person on the phone that PMI was changed to for life of loan as Troy stated. Definitely check into it before signing on the dotted line.
The part that killed me was paying off the loan 3 months after the PMI was dropped. $95 per month x 5 years = $5,700. I'm OK with it though. The house is mine free and clear. Now I have some equity to play with.
It all depends on the exit strategy and how much time you have to close along with the type of project. More details needed.
- Ian Walsh