Structuring and financing your first deal

[Dan Knight]

Hi all,

I am a new investor looking to find a first deal on which to cut my teeth.  I have recently come across a fourplex located near a large hospital that employs a significant number of people in a good area that seems like it might be a good first deal.

Since I am not living in the building, FHA/203K loans are out. Hard money is also out as I would need to hang on to this for longer than a couple months.

I do not currently have enough capital to put 20% down with a conventional mortgage, so I found a partner that does have the money. We agreed that he would put down the down payment and provide the financial reserves, while I provided the leg work and split 50/50.  

However, I have found out that with a conventional mortgage loan you cannot have someone else put down the down payment (gifting the money) unless they are related to you or a spouse/fiance.  

Is my only option left to syndicate from multiple people and buy the property in cash?

Thanks in advance for any input.

Dan

[Andrew Postell]

@Dan Knight a couple of things here.  I see there are some good comments above but I wanted to add a couple of things:

• There are other options besides "hard money". There are lenders here in Texas that do 20 year ARM loans with lower closing costs. They are generally quicker than a conventional, conforming lender with closing time but we still don't want to be in there loan too long so refinancing out should still be a choice after closing.
• If you still want to use conventional money to purchase (meaning Fannie/Freddie money) then you need to keep in mind a few things:
  • Minimum downpayment on a 4-plex is 25% with Fannie/Freddie (20% is possible with a duplex but not 3-4 unit)
  • If you have a business bank account then you are not required to "source" funds.  Essentially, if you have a registered business, a bank will allow you to open a business account.  Then your partner can deposit the funds into your business account and it won't matter that you got the funds from him/her.
  • The property will have to be "move in ready".  Meaning, no work is needed to be performed.  If you were planning on rehabbing it cosmetically (no foundation, roof, woodrot, etc. stuff) then you can buy with conventional loan and rehab after.  The rehab would have to come out of your own pocket though.

*WHEW* I hope that wasn't too much information. I would still suggest finding one of those 20 year ARM loans. In theory, if the ARV would move enough you could use FAR less out of pocket than with the conventional loan. Then just refinance after.

Feel free to tag me with any additional questions.  Nice to see a fellow Texan.  Thanks!