First investment property-10% down?

Question

I'm buying my first rental property. Actually, my first home period. I'm told I have to put 10% down since it's an investment property. Is this true? What other options do I have? I have the cash and I'm definately buying the house but I'd like to some inputs about the mortgage.

I know there are tons of books, videos, etc. on no money down mortgages but I'd rather hear from real people wanting to help out rather than fanatics trying to sell me a book. Thanks for your time.

In case your wondering. I'm military, that's why I don't own the home I'm in now. 1. Japan doesn't let non-citizens own property. 2. I'm moving twice in the next 12 months.

Justin Putt · Answer

Mike, do you do these properties you are going to rent, and if so, what kind of interest rate and length of loan do you get. I would assume a loan like this, which maybe is a HML, would be for a short term property you are going to flip because it has a high interest rate. What is the benefit of doing this, and if its for a rental, wouldnt you have to refi to get a good rate for holding the property?

Steven Wind · Answer

Not true. Anyone can own property in Japan.

Michael Simmons · Answer

MikeOH, Thanks. I'll look into it. The property appraised for close to 200k and I'm buying for 150k. I'll check the bank, that will definately help. Noobdog, Thanks for turning me onto the HML. This home has been in my wife's family. We're looking long term so I don't think a HML would be best in this case. I intend to buy more properties and it's good to know that a lender who understands what ingenuity can bring to a deal is out there. Japutt, The mortgage broker said around 7% and I can buy a point for $1350 after I put the $15k down. He hasn't gotten back to me with the exact figures. It's a 30 year mortgage. The tenant will be paying mortgage, taxes, and insurance +10%. BT I should have included more details in my first question. It's a family deal, grandma owns it outright and needs the cash to maintain a comfortable lifestyle. She'll stay there and pay rent as long as she needs to. We're definately buying the house wether I break even or loose a little (cringe). Like I said the rent will cover mortgage/tax/ins. + 10%. I don't require a rental agent my father in law lives nearby. I anticipate I'll have expenses and plan on just breaking even. I just don't want to give up 15k if I don't have to. I'd rather invest it and have it working for me. Thanks for the advice, keep it coming...

Michael Rossi · Answer

japutt, As Minna said, you can still get a 100% loan for rental properties. What you need to do is find a small local bank that keeps their loans in their own portfolio. It is obviously best if you have a history with the bank and a relationship with one of the players at the bank. I use two local banks. At one bank, I deal directly with the President. At the other, I deal with the vice-president. My credit is spotless and I have never had a late payment. I buy all properties at a BIG discount and never pay more than 70% of the market value (less repairs) and often MUCH less. The bank will loan me 70% of the appraised value, using their appraiser. That's how it works. It is not by accident that I work with the president and vice-president. Relationships are very important in the real estate world. If you don't know who to talk to, ask the SUCCESSFUL investors at your local REIA. They will know which banks work with investors and who to talk to at the bank. If you make friends with a successful investor, maybe they'll even introduce you to the right person. Good Luck, Mike

Justin Putt · Answer

Mike, Is it possible to do this on a conventional loan though? Lets be real there is no 100% financing going on for investors anymore, at least not right now, believe me I have tried. This loan you are talking about sounds great, but can someone like me without a LLC do this and is the interest rate even worth it, because I would assume if they do a loan like that that provides 100% and cash back the rate would be higher. I am with you on hard money. I would never want to use a HML on a rental property, because they are so expensive even for a rehab. I am very interested in what you are doing.

Minna Reid · Answer

100% investment property loans are still out there ( I just got one last month and several lenders were offering it), but the terms aren't the gretatest, probably not ideal for a long term holding situation. You're probably better off putting money down to have a better rate for the long term.

Keith Schulz · Answer

Mike OH, I don't know your Grandma's situation, or how much she needs to maintain a comfortable lifestyle, but would it be possible to do seller financing in this deal? In otherwords, your Grandma holds the mortgage and you make her payments to give her some cashflow. Then if you finish up your duty's in Japan, move home, and Grandma needs the full amount of money, you could refinance at owner occupant terms (better than terms on an investment loan). Even if you move out again and rent it 6 months or a year later this would give you the best terms for a long term buy and hold. Just a thought. If that doesn't work, there are places that will do 100% financing (or at least 95%) on investment properties. You may want to try calling one of your local mortgage brokers rather than the bank (the brokers have access to many different plans/terms).

Michael Rossi · Answer

deuce, This is not my deal, I believe that it is Simms' deal. I do not do deals that lose money and I do not do business with family members. Mike

Michael Rossi · Answer

Japutt, I NEVER use hard money. It is just simply too expensive and will suck a large part of the profit out of every deal (especially rentals). As I said, I use small local banks for my financing and their rates are competitive with any other conventional financing. All of my properties are purchased in LLCs, so the loans are commercial. Currently, the interest rate for commercial loans is about 8% and the term is normally 20 years. Good Luck, Mike

Tom McGiveron · Answer

Simms, what you're running into is quite possibly what one lender requires. like MikeOH said, there are many ways to finance the purchase of real estate. different lenders have different standards. basically though, many will follow the Fannie Mae way of loaning money - in order to be in compliance with them so that they can turn around and sell the notes, hold them or do whatever they want with them. following certain guidelines for whatever type loan provides the lender with multiple options. many mortgage bankers follow specific guidelines in order to sell their notes, like right away. if you decide to use Hard Money - you'll have much more flexibility in terms of being able to put less down, invest in different types of properties and present your investment strategy, rather than just the property itself. what i'm saying here is, if you buy a house and use Wells Fargo - they're not going to be concerned with something like the ARV (after repair value), whereas a HML might loan you money based on that - which grealy enhances your investment options. i know that doesn't make sense right now, but with a little research - you can come to understand the old saying: there's more than one way to skin a cat... being new, just be very cautious what you get yourself involved with. note that i'm not advising you either way and if anyone does, always always always double and triple check what anyone says with your CPA and/or real estate attorney... keep in touch.