First time rental purchase

[Andre Bias]

High my uncle is a real estate investor and he is looking to retire he wants to sale some of his properties and willing to sale them to me at a discounted price some are commercial and some residential the commercial I understand I can get a DSCR loan but the SFH I'm trying to figure out how would I take them down I don't think he is interested in seller financing he wants to off load everything he is older and ready to get rid of them all them are section 8 can some one advice me in the best way to

Purchase the SFH could I use hard money trying to avoid the 20% if possible. Thank you

[Randall Alan]

@Andre Bias

Hi Andre,

The first question is: do have your own money to put towards these purchases?  Hard money loans are designed for temporary purposes... like doing a flip that you will then fix up and sell quickly.  Their terms are more expensive than a traditional loan, often with points up front (ie. the loan you $100,000 but only give you $98,000 because there are 2 points on the loan - (the points are just up front profit for the hard money lender), plus they have a higher interest rate than what a bank would offer.  So if you are looking to hold these properties hard money is not the way to go. 

Any lender, including a hard money lender, is going to want you to have some skin in the game (ie your own money).  The 20% you mention is the typical minimum you can do for investment properties unless you are buying one to live in yourself, then you can do a 3.5% down payment.  And know if you are a new borrower, or when the financial markets are going crazy like they are right now, lenders often tighten the lending standards and will say, "We now want 30% of your money in the deal - which said the opposite way is that they will finance it to 70%.  Other things they will do when markets are turbulent is adjust other lending requirements, like your debt to income ratio required, etc to only write 'better' / 'safer' loans for themselves. 

Just so you know, a commercial lender can write one loan for multiple properties... so presuming you were qualified and had money to throw at the situation, you could probably bundle several properties together into one loan... the DSCR loans aren't just for commercial properties is the point I am trying to make there. We used one to refinance 5 residential properties into one commercial loan. All of our interest rates at the time were in the 5's, and the commercial loan was 4.1%, so it was a cost saving move on our part.

Some things to know about commercial loans, however, are that they are not fixed for the duration of the loan.  Most are fixed for 5 years, and then reset to the current interest rate.  So we potentially could get somewhat screwed if rates are up in the 6-7's when our 4.1% interest rate resets.  So that is a down side to commercial lending.  In addition, the amortize the loan over a shorter period - usually 20-25 years, instead of 30.  This means that your monthly payment will be higher than with a typical 30 year residential loan.

In lieu of owning these properties yourself, maybe you could cut yourself in on getting them sold for your relative.  If you can get them at a discount, and your relative is on board with it, you could do assignment contracts on them where you could sell them to investors or buyers and build in maybe $10,000 onto the property for yourself, just like wholesalers do.  It might be a way to get you setup to have your own money to buy some of the properties if you aren't already there.  

All the best!

Randy