Financing considerations for 1st deal

[Bradley Sainsbury]

Hi All,

Noob here! Been researching, reading, watching videos for a few months now and planning on buying my first investment property in the next 3-6 months. A couple weeks ago my brother approached me and said he wants to get into real estate as well so we are going to partner up. In addition, I’m in the middle of refi’ing my primary residence since I was able to get a 30yr at 2.5% with 1.5 points (LoanDepot if you’re wondering) current mortgage is 3.5% refi’d this past Feb so not too far into the amortization. My payment will drop about $150/mo.  

What I’m trying to figure out is, do I want to finish the refi process if I’m planning on buying an investment property soon? And if I do, how do I want to approach it. 
Some other info. I have about 15% equity on my primary. My brother just bought his primary two months ago with 3% down so he doesn’t much equity on his place. FICO rates us both excellent. We both have steady jobs making high-5/low-6 figs with assets in the low 6-figs, mostly in retirement-type accounts, and only debt is the mortgage. 

I (humbly) think we are both good candidates to begin buying more property. What I’m concerned about in getting a new loan though, is that neither of us has 20% equity. Is that going to be a problem?

I don’t mind moving into the future investment property during the rehab and renting my house to get us started in investing. I’m looking to do wedge/brrrr type deals. My current primary wasn’t bought as an investment, so I got it “at market price”. Running the numbers on turning my house into a rental, it wouldn’t cash flow on the current mortgage, would cash flow $100ish post-refi, it’s in a more “appreciating” neighborhood of Baltimore. That does include property management so if I did that myself, the cash flow would go up. The Zillow rent estimate is 2,250, but I haven’t confirmed/done my research on that yet. Also, my brother wants to be a ‘silent partner’, I’ll be the active one. 

Some other questions/considerations. If I do the refi, suggestions on if it’s worth paying the 1.5 points, or should I pay, say, 0.5 point for a 2.625%? The current loan estimate has all closing costs added to the new loan, so total new loan about 273k, but I assume I would want to pay closing costs out of pocket to keep the equity, so paying one point less saves about 3k. And then there is the question of does a slightly higher rate (2.625 vs 2.5) offset a slightly lower loan (263k vs 273k) and how does that affect the cash flow. 
If between the two of us, we have about 75k liquid for a down payment, rehab and other costs, the part I’m getting stuck on is the 20% equity on a current or investment property because it might be better for me to pay another 5% at closing to get my equity to 20% so we can put down 3-3.5% on the next one rather than 20%. This is the part I’m trying to get creative with as 5%+3.5% would be a lot less than 20%.  I asked the loan officer doing my refi for any tips/suggestions but he said he only does refis and not new purchases so didn’t have any tips. 

One last consideration is a VA loan. Our dad is a vet and, we haven't asked yet, but he probably wouldn't have an issue as a co-signer to get a VA loan. Do investors use VA loans or does the upfront % keep investors away? Also, just thought of this, maybe he would co-sign a conventional loan since my parents house is almost paid off, they have much more than 20% equity.
I guess I’m just really stuck on how much equity is needed on all these current and future properties.

Sorry for the novel, appreciate everyone’s suggestions and let me know if you need more info in order to provide some insight.

Thank you,

Brad