A couple questions about the basics...

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A couple questions about the basics...

N/A N/A
Member since 2008 · 6 posts · 0 votes

Hello everyone! I just found your forum (today), and it appears to be a WEALTH of information. Looks like I'm going to have a lot of reading ahead of me...

Anyway, the reason I am posting here is because I have a couple questions that I'm really hoping someone can answer. I'd love to search the site and educate myself, but unfortunately (or fortunately), I've gotten myself in a situation that needs immediate attention.

Very briefly, I live in a relatively pricey housing market and have been renting for the past two years with my wife. We have saved some money over the past couple years, but due to some personal issues, we weren't able to save as much as we'd like before buying a property. So, for the sake of argument, let's just say that I don't have enough saved to dump onto a down payment or closing costs.

My question begins here: We have found a new construction property that has a two family (double) occupancy AND a single family mobile home. The existing mobile home is currently being rented and generates income each month. My wife and I are looking to purchase the property with another guy I work with. We'd split the mortgage and each live in half of the house.

The problem is that my realtor says that conventional mortgages won't work and I need to go commercial. Is this accurate? Also, it appears that there is no way out of putting money down for a down payment and closing costs. Given this situation, what is typically done to avoid this initial cash investment? Is there a way to easily finance the entire amount (+ closing costs would be nice, too)?

I apologize for the length of the post and the simpleton questions, but I'm about as noob as they get when it comes to this. Does anyone have any information/advice they can pass on?

Thanks in advance!

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  • N/A N/A
    Member since 2008 · 20 posts · 0 votes
    19y

    1-3-2-4,

    Let me try and tackle your questions with precise and hopefully uncomplicated answers.

    1) Your Realtor has told you that the property in question will not be acceptable to lenders under a conventional mortgage program.

    Simple answer = true.

    I have concern with a real estate agent who is showing you properties, especially unique properties, without you having been pre-approved through a lender already. Perhaps you are referring to the listing Realtor and not someone who you hired to help you find a home.

    The problem from a conventional financing standpoint is that you have multiple residences on one legal description which makes this a multi-family property beyond the "normal" 1-4 unit residences acceptable to conventional lenders.

    2)What is typically done to avoid making a down-payment and/or paying closing costs.

    If you are asking specific to this property, there probably is no 100% financing option available so you may have to pass on this one.

    Generally speaking there are many programs for little or no down-payment and you should be talking to a mortgage lender about what you can afford and qualify for prior to looking at homes.

    As for closing costs, you may qualify for city or county down-payment assistance programs (which are more typically used for closing costs instead of down-payment). You may also find that instead of negotiating the best purchase price, perhaps you should accept the listing price but with the seller agreeing to pay closing costs for you. The amount that a seller can pay for you varies depending on loan programs but is typically 3% of the amount of your loan when doing 100% financing.

    3) Does anyone have any advice

    Yes

    #1 - Talk to a mortgage lender or two first...now
    #2 - Learn what you are eligible for from the lender and get pre-approved, not pre-qualified. Pre-approval means sharing your income and asset information in addition to your credit and having their underwriter review that info even though you don't yet have a home picked out.
    #3 - don't buy property with other people, especially friends, co-workers, etc. It very rarely works out in your favor.
    #4 - don't buy property you can't afford based on it having rental income that may or may not continue.

    Good luck!

    Ken Stampe
    Bank of America
    Mortgage Lending

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  • Tom McGiveron
    Residential Real Estate Agent · Moriches, NY · Member since 2008 · 635 posts · 9 votes
    19y

    that situation sounds like something you may not want to get involved with. alot goes into investing - for rentals - you'll need to go over a cost analysis of it first - for any property that you intend to rent.

    you've got a long way towards figuring all this out. the funny thing is, you'll read these replies, from total strangers and if you get into real estate investing in more depth - you'll increase your knowledge base - TEN FOLD.

    then you'll look back on this and the next 50 posts or so and say,

    "wow, i was really clueless."

    hang in there - start investing your time into educating yourself.

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  • N/A N/A
    OP
    Member since 2008 · 6 posts · 0 votes
    19y

    Thanks for your help, everyone. You've answered alot of my questions, and also validated my personal concerns. First thing first, I'll talk to a lender. I was planning on doing this, but one thing led to another, and well, you know. I wish there was more information out there for noobs like myself, but I guess that is why I should start doing some reading and speak to a mortgage agent.

    Thanks again for your help.

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  • Tom McGiveron
    Residential Real Estate Agent · Moriches, NY · Member since 2008 · 635 posts · 9 votes
    19y

    there's a ton of information out there on many sites!

    don't over do it when it comes to "reading about real estate"...

    sooner or later you're going to have to get out there and consider your options - the thing is how well can anyone actually consider their options when they don't know about the options that exist...that's where your basic education comes into play.

    good luck!!

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  • Matt H
    Member since 2008 · 452 posts · 18 votes
    19y

    I would avoid the situation alltogether. Just forget about it. Find your own deal to do. You get a partner in and he'll screw you, and he'll screw your wife behind your back. Especially when you're all living in the same house. Don't do it.

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  • N/A N/A
    OP
    Member since 2008 · 6 posts · 0 votes
    19y
    Originally posted by "r2d246":
    I would avoid the situation alltogether. Just forget about it. Find your own deal to do. You get a partner in and he'll screw you, and he'll screw your wife behind your back. Especially when you're all living in the same house. Don't do it.

    Sounds a bit dramatic, but I see your point. I am meeting with a lender this weekend to discuss my options. From there, we'll see what the future holds. Does anyone have any recommendations when it comes to lenders (specific banks, credit unions, online, etc.)?

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  • Matt H
    Member since 2008 · 452 posts · 18 votes
    19y

    I was just in a kidding around mood last night. ......Listen here's what you do.....look for a lender that does loans based on what's known as "Stated Income". So you'll call up a mortgage broker. Tell them your situation, and tell them that if you can't qualify for a regular fully disclosed mortgage that you'll need to use a lender that lends based on stated income. Then just be sure that your total income will cover whatever you plan to buy, and you'll be guaranteed to get the mortgage.

    You should also try to figure out what exactly you're trying to accomplish. You don't want to just "wing it". You should have a plan writen out with deadlines and objectives.

    When you're just starting out one way to make big money is by flipping homes. You look for a decrepid home the best neighborhood that you can afford. One that needs work. Do cheap renos, like I'm talking walmart supplies. And do all the work yourself. Then relist with a realtor and sell it. I've never made less than $25k net net on a flip. My last flip I made $140 net. And I just stubbled upon a house just last weekend that I might be able to flip for about $500k net, if you can believe it. So there are incredible deals out there if you keep scanning the mls listings.

    The reason you want to raise capital in the early phases of your realestate investing career is to build up some cash so that you can buy your first apartment building. And you definitely do not need a lot of money. But you need enough to do the deal and to show the lender that you have some degree of net worth in order for them to accept you as a guarantor if need be. There are ways around all of this though. Like you could find a lender that does "stated income" loans on multifamily. And then just find sellers that are willing to carry second mortgages in large enough amounts to cover the balance. ie: 85% first and 15% or more second (vendor take back). However, it's easier said that done. Usually you need some money to do a deal. That's were starting with at least one flip can put you in the black.

    Also if you do honestly plan on getting into realestate investing here's what you do. Do not start by doing any deals. You start by gaining education. You cannot afford $100,000+ learning mistakes on real world deals. What you do is go and buy "Carlton Sheets" no money down course. And buy "Dolf Deroos" Realestate Investors College" course. Listen and or read those courses over and over again. They come with CD's so you can listen to them during your drive time. That's the best time to get your studying in. And join a local realestate investors group in your area, so you can meet other professionals. I learned everything I know from those two courses and from one guy who's a friend of mine who owns many buildings. You can too.

    Good luck.

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  • N/A N/A
    OP
    Member since 2008 · 6 posts · 0 votes
    19y

    Wow, thanks for the information. That alone really put things more or less into perspective for me. I'm definitely going to start reading up on this stuff, because right now, I'm pretty much lost in everything. I'll look into those two sources, thanks.

    I think at this point, I'll try to get out of my rental and into a house of my own so at least I'm not blowing money on rent. Of course, I'll buy into something that doesn't break the bank so I can afford to save some money and invest in real estate (rentals/flips/etc.) in the future. I wish I lived in a better area, because flipping is tough around here. The market is atypical to say the least...

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  • Matt H
    Member since 2008 · 452 posts · 18 votes
    19y

    Buy a house, live in it just long enough to fix it up and then flip it. Don't worry about tax consequences either. Time is more valuable than the small amount you might have to pay in taxes. Then just keep flipping properties. But try to find situations that you could make at least $50k net when you flip it. That way doing even one flip gets you off the starting block. If you can do two flips per year you'll be making $100k per year net. Then start to educate yourself on buying apartments with little to no money down, using combinations of first and second mortgages. Then eventually find a nice sized apartment building, and just buy and hold your apartments. Apartments aren't usually worth flipping. Just hold them for cash flow. Then eventually if you did say one apartment purchase each you'll be well on your way. Remember you don't need your own money to buy realestate. You can use other peoples money. So get high on OPM. Opium, you know the stuff they grow in Afganastan? lol

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  • N/A N/A
    OP
    Member since 2008 · 6 posts · 0 votes
    19y

    Thanks for the advice. With any luck, I'll be moving into a place within 3 months. Right now the real estate market is especially low in my area, but most sources I've researched seem to indicate that it should rebound in late 2007. Now is the time to act as far as I'm concerned.

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  • Matt H
    Member since 2008 · 452 posts · 18 votes
    19y

    Be there or be square, and remember, the shortest distance between two points is a straight line.

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  • N/A N/A
    OP
    Member since 2008 · 6 posts · 0 votes
    19y

    How do you guys/girls recommend I go about finding a lender? I'm not really sure where to go to speak with someone. Should I try my local bank? A credit union? Should I go with some national place, such as Countrywide? Or maybe something like lending tree? I'd prefer to speak with someone in person, but if there are better options, I'm all over them.

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  • Matt H
    Member since 2008 · 452 posts · 18 votes
    19y

    Yellow pages under Mortgage Brokers. Find a mortgage broker and tell them you my need to go with a lender who's willing to lend based on "Stated Income", in case you don't qualify using full disclosure.

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