Best place to get a small loan? Recommendations?

Question

Hi BP community,

I am on my way to purchasing my first property. I'm currently doing my market research and due diligence and I have a question about financing.

I'm considering by starting with a turnkey property in the 60-70k range to get my feet wet. I have enough money to make a cash purchase. However, is that the best use of my money? Ideally, I'd like to put down 15% and use a loan for the remaining amount so I can leverage my money and use the rest of my cash to repeat this process. I'd love to end up with 3-4 properties. Where can I find a lender that is willing to give out such a small loan to an investor like myself? At a 60k purchase price with 15% down, we are talking a roughly 50k loan. Will a conventional lender do that? If not, who will? Does anyone have any experience with getting a small loan for an investment property like this? If so, I'd love to talk to whoever you worked with.

Thank you in advance.

Anthony

Grant Greene · Answer

Good afternoon, @Anthony To.  Here's something to consider: if you have the money ($60-70K) to purchase a distressed property and do the minimum rehab necessary to make it habitable (and therefore lendable), you can immediately turn around, have the property appraised, refinance, and pull out up to 75% of the new appraised value or the amount of the original purchase, whichever is less - and you can do all of this without having to wait for the house to sell (if you're a fix-and-flipper).  Let me explain:

You purchase the home for $60K (it has a kitchen that's been ripped out), so you have to put another $10K into it to get a standard (no frills) kitchen installed.  Once that's completed, you have the house appraised, and let's say it now appraises for $85K.  You can then refinance the home and pull out the $60K for which you purchased the property originally.  (75% of $85K is $63,750; $60K is less than that - you get the lesser of the two options.)

So, you now have a property that's worth $85K with a mortgage of only $60K that you can rent out most likely for your monthly mortgage payment (or more) - and you got your original $60K back to go out and purchase another property.

I hope this helps - at least you have one more option to consider.  Good luck!

Adam Widdicombe · Answer

@Anthony To

Welcome to BP and the journey you have started.

I just started my investing "career" outside of my normal W2 and so far its going great! I will be closing on 2 TK properties in August in KC.

I can give you some info...I did a TON of research and talked to a lot of people. All of which I met on here. Any one that said "we should talk" or "I can help you find some TK companies" "what are you long term plans" any of those people I made an appointment with and listened to what they had to say. Ultimately I chose a company and bank in KC. For me it was close to my home state of MN and the market there right now is crazy good.

If you want to talk more just shoot me a message and I can explain in more detail.

Best of luck to you and if you need anything BP is the best!

Anthony To · Answer

@James Wachob Thanks for the invitation to Memphis! I accepted your connect. If I'm ever around there I'll get in touch with you.

Jennifer Slaughter · Answer

Hey @Anthony To, I got a small loan for an amount similar to what you're talking about.  I did it in Memphis after I refinanced a property and pulled my cash back out.  I was actually just there for an investing conference and most of the other investors I met were from SD/OC.  PM if you would like the lenders info

Sterling Fields · Answer

@Anthony To Have you thought about a smaller community bank (I'm talking like 3 branches) in the are you want to invest? Many of these banks are dying for the chance to work with someone who is financially strong. The key is to get an "in-house" loan from one of these banks. They very well might let you go 15% down without any PMI, and at a good interest rate.

Anthony To · Answer

@Brian Lesko 20% would be great for me as well. Good point on the PMI, I didn't think of that. I've been looking at Cleveland, Memphis and Indianapolis. Seems like those are pretty popular markets amongst the BP community. 60k might be a bit optimistic but there are lots of properties floating around the marketplace in the 70k-80k range.

Matthew Rogers · Answer

@Anthony To I'm from Arizona and worked for a few years at Wells Fargo as a loan officer. Most small credit unions and large regional banks should be able to underwrite a loan for 50k without any issues. Like most other's indicated you'll want/need to put down 20% on a SFH and 25% on a Multi-family.

Some lenders or loan officers will flat out lie to you and say they can't do a loan under 100k or 50k or whatever number they decide to tell you. This is for a couple reasons, the first being they simply make a lot less commission on a home that's 50k compared to a home that's 250k or 500k and they both require the same effort. The second reason is because what happens sometimes is they will get half way through the loan and closing cost will come back higher than anticipated and now the loan is dead. But you as the buyer have already paid for an appraisal and credit report that are non refundable. Not the ideal situation to put yourself in if your a loan officer.

In Arizona and most states in the US their is a maximum closing cost percentage of the loan amount. So let's say your buying a home for 50k and the maximum closing cost percentage is 7% of the loan amount. That would equal $3,500. So if all of your closing cost combined are greater than $3,500 the lender can NOT legally underwrite the loan. After you pay $650 for an appraisal, $1,000 for property taxes, $1,000 for origination, $650 for title and so on it's very easy to get close or pass that magic number. I don't recall what the maximum is off the top of my head so 7% is just an example. But I hope that sheds some light on to why and how the bank actually looks at the loan. One other thing is often times the lender will make you pay points for a lower rate because the loan is so small and this is one more thing that can contribute to closing cost being inflated.

Most of AZ loans around $50k will go through but as you look back east because of property taxes it is more challenging to make them happen. Good luck and let me know if you need any help with running the numbers.

James Wachob · Answer

@Anthony To have you ever visited Memphis? I'd be happy to show you around!

Anthony Angotti · Answer

@Anthony To

Smaller banks/credit unions that keep the loans themselves are usually the best. Just make sure that they will operate out of state. Some don't/won't.

You could also look for a similar lender in the area that you are investing, but will need to do the opposite. Will need to make sure they will work with you as an out of state person.

Grant Greene · Answer

I'm glad you found it helpful.  This can be accomplished out of state, but you're right to question the viability. If you can find a good real estate agent who has experience working with investors, you're a lot safer in pursuing a project like this because he/she will have reputable contractors to help you accomplish your goals.

Best place to get a small loan? Recommendations?

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