Loan Question for Buying a New House

[Account Closed]

Hello, 

I am very interested in making my first real estate investment purchase but am a little stuck on the first step I need to take. I have a Realtor who has shown me a house that the numbers look good on and I want to make a move on. I am stuck on the next steps. A few questions I have: 

1) The list price of the property is at $319,000 and we are thinking of making an offer of $295,000. I am a complete newbie on how to go about getting a loan. What are my options as far a down payments are concerned? From reading online, it seems as if commercial loans all require a 25% down payment. Is there any other loan out there that I can look at, which will require me to only put down 10-20%? 

2) Just a high level overview:

Monthly Rent: $2,950
Property Taxes: $6,500
Offer Price: $295,000

Just based on those high level numbers - do they make sense? I have been running them through spreadsheet after spreadsheets and everything keeps telling me yes, but I just want to be sure. 

Any help, any blog articles, any books, and references on where I can learn more about loans would be great. I am based in the Central Jersey area. 

Thank You

[Penny Clark]

@Account ClosedJust one more thing. If you are buying a home you plan to rent out rooms to, will you be living in one of the rooms as well? This is a form of house hacking, and if you can tolerate dealing with tenant-roommates, it can also be one of the cheapest ways to enter real estate investing. Start by qualifying for an FHA loan (ask a lender about the requirements) and I would target the home in a desirable area. If you'd like additional privacy, look for a home with a downstairs bedroom and bath and the other bedrooms and bath upstairs. You will have to occupy the property for at least a year but you will only have to put 3-5 percent down. You will have FHA insurance to pay but eventually you should be able to refinance into a conventional loan to get out of that cost. My nephew who bought a nice condo in Arizona does this form of house hacking by renting out rooms on the upstairs level while he occupies the downstairs bedroom and bath and it has worked out for him. You will have to check with the laws in your state or consult with a real estate attorney to help you draft up this type of lease.

If having a tenant/roommate down the hall doesn't appeal to you, you can still do house hacking by using an FHA loan to purchase a duplex, triplex or fourplex. This is not a commercial loan because it does not finance over four units. You can use a typical lease for this type of tenant since you would be living in one unit and your tenants would be occupying the other units.

Buying a home to occupy it and rent it out is a great strategy and is one of the most inexpensive ways to kick off a buy and hold real estate investing business. However, if you don't get your financing lined up, the dream won't get off the ground, so make THAT your first priority.

Good luck to you and let us know when you get that first deal!