New Investor from Nashville, TN working on my first deal!

[Kasey Gourley]

Hello BP! I am from the Nashville, Tennessee area and new to REI. I have been educating myself in every way possible over the last 3 months. I have now decided to jump in head first and I have been making offers on buy and holds, as well as flips; all of which a higher offer has been accepted, but I have held my ground for good reasons on ensuring my analysis and numbers work and I get the return I expect given the riskiness of the property. I have recently come across a duplex I want to make an offer on and the sellers agent mentioned the owner has another duplex two doors down he would be willing to sell as well in a package deal (likely at a discount to get rid of both). I want to make an offer to buy both, but I wouldn't have the 20-25% down most banks would require so I am making an offer in which the seller carries a note on the property for 3-5 years. My question is, this being my first deal, how do I approach a bank with this deal? Do I disclose the seller taking a second mortgage? Would it be hard to get the bank to loan me the money (I have great credit, a good job, and a masters degree aka quite a bit of student loans)? Any insight would be greatly appreciated! Thanks

[Josh Braun]

@Kasey Gourley - Since you mentioned the words "seller's agent" and "higher offer" I'm making an assumption that you are looking at properties on the MLS. If that is the case, its going to be tough to find a really good deal in our area, especially on multi-families. I tried that route when I first started off and my first 15 MLS multi-family offers weren't accepted for the higher offer reason. I gave up on the MLS for multi-family properties. The MLS is competitive because it has a very low barrier to entry. On a single family front, I have found a MLS deal before, but it is very time consuming. My funnel consisted of receiving daily emails for a very narrow first time home buyer type house (sq ft, beds, baths) in a zip code and neighborhood. Of those emails, I analyzed 76, looked at 23 and put offers in on 14, finally getting 1 deal. Took me around 3 months. Now I spend my energy on the ground looking for deals and work in a less competitive scenario than the MLS; still highly competitive though.

Now to answer your questions. Quick note - Its easy to flex on your numbers if you haven't done deals before, so hold your ground and if the numbers don't work, don't do it. My answers below are solely my opinion and what I'm seeing when talking with banks.  For a multi-family I would suggest the FHA 3.5% down route if you don't have a primary residence yet. This is a great way to start investing with low money down. You can do up to a 4 door unit I believe.  If you already have a primary residence, option 2 is to go to a local/regional bank/mortgage company and ask for an investment loan. That is going to cost you around 5% interest, 20% down and up to 30 year fixed.  Option 3 is the commercial route.  Expect something in the 4% range for interest rate, 15% down and a DTI number greater than 1.20.  I'm seeing 5/20 ARM terms for that.  

When talking to a bank, you always need to disclose additional liens and how you are funding the downpayment. I haven't found a bank willing to allow the seller to do owner financing on the downpayment or second position. They want you to have cash to do the downpayment and LTV will be based on the lower of purchase price or appraised amount. There are also tons of creative financing strategies, but I've found those have very little appeal if you are offer on an MLS property. Good luck!