Investment Property Purchase Limit

[Michael Trueba]

Hi! I am trying to be a real estate investor and I am in my research and learning phase. I am having a difficult time determining the purchase price of a home for buy and hold investing. How do I determine my limit? I know you need capital to make a downpayment (likely 20% for me) and possibly renovations unless I can get creative with the financing. I could really use some help clarifying this. Thanks in advance!

[Zack Karp]

@Michael Trueba let's clarify, are you talking about buying a primary residence, or investment property?

If investment property, you can throw the FHA 203K out the window, that's for a primary residence only.

Fannie Mae offers the HomeStyle renovation loan, which can be used for a primary 1-4 unit, or an investment 1-unit property.  There are some nuances for this program (i.e. no more than 50% of the loan amount can be rehab), but overall it's not as strict as the 203K.

Outside of HomeStyle, there is no other Conventional option for rehab.

For a regular Conventional loan, the loan amount is based off the lower of the purchase price or appraised value. So to your question above, the answer is no, if the property is worth $150K and you are buying it for $100K, you cannot just finance $110K. It doesn't work like that, no matter the lender, for Conventional financing. You would need another loan type, such as a commercial loan, DSCR loan, portfolio loan, hard money loan, etc, which will all likely come with much worse terms than a Conventional loan.

As mentioned above, your best bet is to talk to your lender.  If you don't have one, find one here on BP that specializes working with investors.  If they don't offer HomeStyle and you want Conventional terms, find one that does.  Just don't call the large online call center lenders, unless you want a guy who was working at Jiffy Lube 6 months ago quarterbacking your financing.

Hope that helps and best of luck!