My first time out...advice?

[Stephen Sparks]

I have $80,000 to my name. I want to buy a rental. I think I should start small. I have excellent credit,  but no job. I contacted a realtor to help me find some rental properties. He found some. He suggested a non bank lender. Here is what they offered:

-Private loan

- 50% down

- Interest rate: 9.9%, interest only with a balloon payment

- $2000 finder fee

- $895 processing fee

- $450 appraisal fee

- $750 attorney fee

- Prepayment Penalty 1st year , 12 months interest, but no less than 3% of the loan amount

- Loan will be for 3 years with option to extend to 5 years based on payment history

I don't know. What could POSSIBLY go wrong? 

What if the lender decides NOT to let me refinance? Then I will have to sell.

Can they call in a loan? I don't know, does that happen often?

If they DO let me exercise the 5 year option, how does that work? How much will that cost me?

If they Do let me refinance, does that mean I get hit with another $4095 in fees?

My realtor says this is a great loan.  He says a $60,000 loan  at 10% interest would be about $500/month.   Add $200/mo for taxes and insurance, about 700 /month.

Here's the hypothetical: 

-Find a 120,000 quad

- I put $60,000 cash down

-take a loan with these terms for another $ 60,000

- $2000 / mo gross income

-$500 interest

-$200 / mo taxes and insurance

-$200/mo management fee

-$100/mo misc.expenses.

$1000/mo profit x 60 month loan term = $60,000 profit.

Worst case scenario: 

At the 3 year mark ( 36months,) they chose not to refinance. Let suppose I could sell it for what I bought it for, 120,000.

Repay the $60,000 loan, I'm left with my original cash down payment, plus potentially $36,000 profit.

Even if everything goes perfect, I still have to consider costs associated with a pre -purchase inspection, title transfers, title insurance, and closing costs, right?

What do you all think? Best regards,S. Sparks

[Colin Smith]

I think you need to find a different lender. That sounds like a hard money lender because those rates are very high for a rental property with a lot down and a short term. Possibly look for a different Realtor as well because he should not have told you to talk to a hard money lender for a rental property. You want something that can be amortized for 30 years and a much lower interest rate.

Yes you will have to pay all those costs as well (inspection, appraisal, closing costs, etc.).

I would also possibly suggest getting a job as well. It will make financing a whole lot easier.