Looking to dive into first investment property

[Saim Chaudhry]

Hi all,

I am looking to purchase my first rental property in my local market (Sacramento, Stockton, Lodi). However, I am unable to qualify for any bank financing as my credit score is in recovery. I was financially irresponsible when I turned 18 and opened credit lines which I was late on paying. It will definitely take a while (a year to 2 years) for my credit to be acceptable. I have been much more responsible and learned the importance of credit through this journey and won't be making the same mistakes.

My goal is to purchase 2 investment properties by the end of this year. I will have about $50,000 capital to work with. I am posting to see if anyone has any experience, or any pointers, or even any leads on any local owners of any property in my marketplace that would be willing to sell based on owner financing terms. My goal would be to owner finance an investment property. I would like the most bang for my buck and would love a duplex or any other multi-unit property, the more units the better in my opinion, especially if it is over 5 units so that I can add value to the property by increasing its NOI and trading up by doing a 1031 exchange or refinancing and expanding, versus just purchasing a single family residence with a single tenant.

The terms I would be looking for would be a seller financed property with possibly 10-15% down. For example: If I was to purchase a $299,000 4 unit property and put down 15%, that would be $44,850, most of my money in which case I probably would only be able to purchase one property this year and not 2. However, I would be OK with this since it is multiple units. I am prepared for C and D class areas so long as the property has a strong rental history and I can find a property owner who is willing to sell with acceptable terms for both of us. The terms I am prepared for is paying a higher interest rate to the seller (6-8% or even 10-12% if the numbers can still work out). Turn key would be best since it is my first property and I would not have the rehab experience or money. Also thought about possibly doing a JV to have more buying power for an investment property. I would like the loan amortized over 30 years but am prepared for it to be due in 1-2 years, at which point I could refinance and be qualified for financing.

I would like to get some thoughts. Is this a bad idea for my first investment? Is there anything I need to be specially weary of, such as the due on sale clause if someone is seller financing a property with a mortgage already on it? Is there a better use of my money with my goals and situation? 

Cash flow is most important for me at this point in my life. I would like to start building a small portfolio of investment properties and eventually exchange my way up to small to mid size apartments in a few years, rather than owning a bunch of single family homes. Would love to get some thoughts.