Rookie Down payment question

[Dana Vijum]

I have found a rental property in a desirable area of Phoenix AZ  and have made an offer on it.  Since I am a new investor, the bank is requiring 30% down plus closing costs.

The loan will have a fixed 4.82% APR for 30 years

30% down  will be $75,000 + $6,000 in closing costs. 

Since this is my first deal and most likely the one I will learn the most from; other than wiping out my entire savings for the down payment; is there another way to structure this deal?

Dana Vijum

[Marco Lopez]

Hmm. I am not familiar with Arizona Real Estate Law. So I will offer advice with my understanding of Texas Law and maybe it will help you with some alternatives available to you.

The down payment is high. 

1. I would try to get seller finance with a 6% APR (I would go as high as 9% if its a good deal) and 10% down. Balloon payment (the date the loan must be paid in full or refinanced) would be no earlier than 3 years. Or

2. Look for an alternative lender who is willing to come closer to 20% down. 

Both alternatives allow you to keep more funds in reserve. Additionally, the seller finance will allow you to get the property to cash flow assuming you are purchasing this investment at a reduced price and have a plan to create a "value add" scenario. 

Ultimately, this question concerns deal structure. I would look for a structure that allows you to keep the most in reserves at the highest NOI (net operating income) to investment (total $ invested to acquire property) ratio. I hope this helps!