Real Estate Financing

[Nathan Harris]

Hi my name is Nathan, I've been reading here awhile, but this is my first post. I'm interested in getting into real estate once I finish school, and currently have 1 rental property. I've been trying to put a realistic plan for a buy and hold strategy, and I'm not sure what is realistic as far as financing goes. I'd like to start out buying about 1 property a quarter looking at properties in the 40k-80k range and putting 20% down. I should be making a pretty good salary at about 130K/yr, and my credit is good. Given these parameters, do you think this is a reasonable(doable) strategy. Will I start running in to financing problems, and if so, when(house #). Is there a way to be more aggressive, or will I simply run into financing issues trying to grow quicker than this? I am interested in fairly traditional bank financing. Thanks for your input!

[Peter Giardini]

Nathan,

Congratulations on jumping... you sound like you have a plan and the will/capacity to execute it.

Your question regarding financing appears to assume that all of your deals will be financed via conventional financing means. While that may be a great way to get into a deal, as your post implies, there are significant limitations regarding the number of loans you can have. At this time the Fannie/Freddie limit I believe is 10 loans including your personal residence, but many lenders have capped their conventional lending to 4 loans.

S0... if you stay with the conventional financing approach you can expect to be done investing with your 10th property. That may be enough to achieve your goals. If so, great. If not... then what?

I recommend that you learn to finance your deals using commercial lending practices through small local banks. While the interest rate may be higher... around 7% or so, you will have much more flexibility with the number of loans and you won't feel like you are undergoing a proctology exam everytime to go through the process.

Also, using small local banks (you will be looking for portfolio lenders) your degree of confidence in knowing that your deals will get financed will be much higher.

I recommend that investors purchase their deals with hard or private funds and then refinance thosee funds out with a local lender once the property has been leased up.

Hope this was helpful... and best of luck!

Pete