Fund Duplex With Part Time Job?

Question

I am new to real estate investing, so this is probably a newbie question. So where I live in Albany you can buy duplexes for 30k-50k. Granted these are in some of the rougher residential neighborhoods, not quite war-zones, but very very close. Personally I've lived in worse neighborhoods so fear for my own safety is not the primary issue. Currently I rent, have four roommates and we pay 2.3k+ monthly so 583 each. This includes all utilities.

It seems to me that if my brother and I just bought one of the duplexes, we could live in one of the units and rent out the other to help pay expenses. As far as I can tell even if we didn't rent out the second unit, the mortgage on a 50k property would be less than what were currently paying, even when you account for tax and insurance. The main thing preventing us from doing this is that were both full time students and only part time employed so we couldn't get a mortgage when we called banks.

1.) Other than having a cosigner, do we have any options for financing?

2.) Or should we not seek financing and just save up our money for later?

Brian Gibbons · Answer

Hi Brian,

If the OP is concerned about buying on terms with Dodd Frank (residential), he can see a RMLO.  RMLOs can create a owner financed note that complies with Dodd Frank.  See

http://papersourceonline.com/5040/dodd-frank-note-business-explained/#axzz2sQKfafKh from the Note Broker Industry.

Brian Levredge · Answer

The problem the OP runs into is that this would by definition be a residential, owner occupied loan.  I agree it's much easier investor to investor, but that won't be the case here, unless the OP changes his initial stated intentions and does not occupy the property.

Brian Gibbons · Answer

Dodd Frank is not that bad.

Investor to investor - landlord can do what ever they want to do, its only Investor to Owner Occupant.

Resources to Dodd Frank are here on BP

http://www.biggerpockets.com/search?utf8=%E2%9C%93&term=dodd+frank+bill+gulley+brian+gibbons

Shane Mahar · Answer

owner financing has many parts to it so I will be doing it somewhat of a disservice but here's the bare bones of how it would work.

The seller would act as the bank and ask for a downpayent before placing a lien on the property in your name. Of course the seller isn't going to want to do this for 30 years so here's where the balloon payment you mentioned comes in. But don't be discouraged about it, because it doesn't have to be cash.

It just means that in say 5 years, you will be able to get a loan on the property from the bank (be it a purchase loan or possibly a refinance loan depending on the structure).

The balloon payment isn't the problem. The hard part is what @Brian Levredge  mentioned.

Brian Levredge · Answer

Owner financing or some type of master lease option would probably be best, but there are new hurdles with Dodd Frank going into full gear that you (and especially the potential seller) need to be aware of.  Ignoring all that for a minute, the best way to find a potential owner finance situation would be to check addresses on public records to see if the property is mortgaged or not.  You are looking for one that is owned free and clear.  You can then try to contact these people via mail or some other method and see if they would be interested in selling to you.  It will take a lot of time and effort on your part, as well as some expense, but given your situation I'm not sure what other options you have.

Justin Rickson · Answer

seller financing is definately a possibility. I see deals popping up in these areas from time to time. Your going to need some sort of down payment though even with owner hold note. You may be able to negotiate a low amount down though

Louis Aller · Answer

Those are all very valid points. Especially about the exit strategy. I need to wait a long time until I save up the money to make down payment and repairs. @Shane Mahar do you want to give me a quick rundown on how owner financing works? Won't it have a balloon payment of some kind?

Shane Mahar · Answer

Louis,

I'm a Realtor here in Albany and I love the way you're thinking.  Why pay rent when you can be the one getting paid the rent?

But of course, finding funding is a problem.  Have you looked much into owner-financing? It seems perfect for your situation, but it too would require some sort of down payment. Let me know if you have any wuestions on that.

Brian Mathews · Answer

Good plan if you can get financing.  Make sure you have an exit strategy.  What happens when you or your brother get married and the wife doesn't want anything to do with living in a crappy part of town?  What if the wife doesn't want to own that and wants their share of the money but the single brother wants too still and you can't sell it?  Or you don't have the funds to buy out the other one?   How will you handle that?  Maybe it's ok for you and your brother, but do you want your wife and maybe kids living there?  I wouldn't.  Lots of things to think about before rushing out and buying something.  What happens if one of your tenants tears up the other side?  Do you have money to fix it?

Justin R. · Answer

Do you have any credit built up? SEFCU will let you apply online for free so no risk there really. I wouldn't recommend buying anything until you have some cash savings built up for a 20% down payment, plus a significant cash buffer for any unexpected(or expected) repairs.

I'm familiar more with the Pine Hills area and college rentals, but it will be much more difficult to find a deal in that price range in this area(although possible). If you have any other questions about Albany let me know and I will try to assist.