Looking for advice on first deal!

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Looking for advice on first deal!

Hailey Pliner
Member since 2018 · 3 posts · 0 votes

I am looking to purchase my first rental property but need some advice on where to go from here! I have found a 3 unit with 2 of the units already rented out with 15+ year tenants with another unit that we would live in. Property is in great shape, no work needed. However, my credit is only fair and and FHA loan is not a option. ( 4+ year old closed credit cards that are being paid off).

We plan to sell our current home and use the proceeds to pay off the credit cards dragging our credit down and the lender we work with has verified doing so will raise our credit to where it needs to be. 

I have found a hard money lender that can lend us the money to purchase with a reasonable interest rate and balloon payment 8 months after but is it too risky to plan on the house appraising and getting a home equity loan to pay them back? 

The other option I thought of was finding someone to buy the home and rent it to us with a higher rate while we sell our house and pay off the negatives on our credit and buy it back from them at a higher price so the investor would be receiving rent and a higher price as compensation. 

Is there a better option out there and if so how do I go about executing this? Thanks in advance for your time!

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  • Michael Lee
    Investor · Coppell, TX · Member since 2008 · 2k+ posts · 646 votes
    8y

    Hello Hailey!  I would continue working on any debt that maybe hurting my credit score.  If you have not pursued this is to maybe get owner financing.  It might help to show them on paper how much more they can make and  spread out their income and have less possible income tax liability in the life of the loan.  This way is more negotiable.

    The owner could do a "subject to" or a "lease option" that will help you both.  Also, seek out a Private Lender who might do a loan for you at a cheaper interest rate and give you at least 12 months .  They, like the Owner, look more at the deal and not you.  Depending on how much they like you, might mean a lower down payment.  On a "lease option", part of your rent payment could reduce your future price.

    Good luck to you!

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  • Corby GoadeBusiness Member
    Investor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes
    8y

    If you are having trouble getting a loan now, I would definitely not recommend getting in to a situation where you owe a hard money lender a balloon in eight months, that sounds like a HUGE gamble. Just having credit cards open should not have a hugely negative effect on your credit- however, having large balances on those cards and insufficient income to cover the payments would. Either you haven't been completely transparent here, or you need to learn a bit more about how to improve your credit to put yourself in a better buying position. If you are a W2 worker, your DTI is very important to keep in check as you work on growing your portfolio. I'd recommend no credit card balances, no car payments, etc. That will put you in the best position to get your nest egg started. Good luck!

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  • Hailey Pliner
    OP
    Member since 2018 · 3 posts · 0 votes
    8y

    Thanks for the advice! I should have explained better, we did explore the owner finance route and the owner has never done that therefore not willing to explore that route. 

    As for our credit, we don’t have any open credit cards. They are all older credit accounts that have been closed for over 3 years that we just started to make payments on since we decided we would like to invest. We have not opened any new credit cards at this point so since the bad credit we’ve never started building good credit. Debt to income is not an issue, we have very low debts compared to our income.

    If we were able to find a private lender for 12 months is the best route to get a home equity loan after those 12 months are up to pay back the private lender? What are the risks involved with that? Again, our credit will be good to go after the sale of our house proceeds pays off our older bad credit, ( I am aware it will drop first before rising once accounts are paid off)  I also just opened up a secured credit card to start building good credit per our lenders suggestion that is working with us to build it. 

    Thank you!

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  • Steve B.
    Engineer · Portland, OR · Member since 2014 · 1k+ posts · 1k+ votes
    8y
    Hard money lender with a good interest rate is somewhat of an oxymoron. I Agree with the other posters. Get yourself into a better financial position before trying to manufacture deals
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  • Hailey Pliner
    OP
    Member since 2018 · 3 posts · 0 votes
    8y

    I may be getting confused on private lender vs. hard money lender. I believe I have been speaking with a private lender, they offered a 6% interest rate and are able to payback date of 6 months- 20 years.

    Please correct me if I am wrong, just starting to get involved. 

    The way I am looking at it once we sell our house the proceeds will fix our credit  with a little time once we initially pay it off (it’s only about 10k which the sale of our house will more than cover). 

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