how to finance that first property

Question

Hi BP members

I have received and read a lot of great information on this site, I have learned to analyze property's. I have been to Syracuse NY, North Adams MA, Springfield MA, and in my own area. I have met a lot of great realtors that bend over backwards to help you. But there is one area that I am having a difficult time in and that's the finance area. I am limited on funds. and credit is ok. Can anyone lead me in the wright direction. I am not looking for per say money. I am looking I guess for some one that's been there done that and can tell me YOU NEED TO DO THIS or YOU  NEED TO HAVE THIS.

Thank You all so much

Tim Lovell

Plymouth MA.

Anthony Thompson · Answer

@Tim Lovell I'm in Rhode Island (which is why @Sean Lunny's post popped onto my radar) but reading through this thread, if you are low on cash I agree with @Stephanie P. that you'd probably want to look at house hacking.

An owner occupied loan will get you a mortgage with low down payment and low & fixed rate, basically the best terms you can ask for, though they will scrutinize your finances. (As most lenders will, except hard money lenders who only look at the property/deal but they will want to see non-trivial money down and their rates will probably be prohibitively high for your situation right now.)

I gave a presentation a few years back to our local REIA, RIREIG, on the basics of mortgages, and the "you need to have this" list I gave the attendees, as far as applying for regular mortgage financing, was the following:

• 3 most recent pay stubs (at least a month’s worth); may need to start saving these or get from payroll dept.
• 2 years of complete Federal tax returns (all pages); your accountant may be able to send these to you as PDFs
• 2 years of W-2 tax forms; if you don’t have, accountant or payroll dept. may have or be able to send to you
• 2 months of bank statements (all pages); you’ll be asked to explain every non-payroll deposit to your account (if someone gives you a gift to help with down payment, you’ll need a “gift letter” saying it’s not a loan)
• You’ll end up having to list in detail all your income, expenses (especially monthly ones), assets and liabilities (see Uniform Residential Loan Application: https://www.fanniemae.com/content/guide_form/1003r...)

Apart from that, I do recommend attending one or more local REIA groups as you will probably find many people who will be able to to explain all of this better in person.

Sean Lunny · Answer

@Tim Lovell I guess it depends on your situation, your goals, and what strategy you want to use. Since I don't know what that is - I can tell you my first deal was a house-hack with a duplex. I bought in Rhode Island (Lower barrier to enter) and the numbers worked.  In order for me to qualify for a FHA loan with 0% down (you can do this in Rhode Island) I had to make enough to afford the property (obviously), had to be employed by the same company for at least 2 years, had to have a solid debt to income ratio (I had already paid off all my student loans/car etc), 0 accounts in debt collections, and a decent credit score.

SO long story short - you can do this too if you get all your ducks in a row.

I hope all that made sense lol

Stephanie P. · Answer

@Tim Lovell

All you should be looking at is house hacking.  It has the lowest barrier to entry of any other strategy.

Find a beat up house that has multiple units.  Live in one and rent the other(s).  Take @Charlie MacPherson's advice and go see that guy at the REIA and find out if you qualify.

Stephanie

Charlie MacPherson · Answer

@Tim Lovell You might want to come to the Boston South REIA tonight (see the "Events" section of BP for details)

Christian from Radius Financial has been coming and can walk you through an FHA 203K (construction) loan.

Kerry Baird · Answer

CONDITION

If the condition of the house is rough, you won't be able to get conventional financing.  Once there is good flooring in place, no holes in walls or floors, no loose wires, no broken windows and any decks attached to the house are in serviceable condition.  I have been able to get mortgages with older roofing, with slightly curling shingles, but a newer roof is better. These items are deal-killers for regular mortgages.

TIMING

As far as the timing, if you paid all cash, if there is no mortgage attached to the house, you can refinance under six months.

If not, you must wait six months.

Michael Glaspie · Answer

@Augustus Miller

you can refinance as soon as the lender allows you to. Delayed financing technique allows after renovations are complete. BRRR typically allows after the tenant has occupied the property for 6 months minimum. Every lender is different and a lot of it depends on the property's performance and your ability to carry a loan. My recommendation is refinancing as soon as possible if you are using borrowed money because the rates may be cheaper with a mortgage. If it was a cash purchase then the refi would give you access to the capital again to find your next property.

Many options but ultimately it's what you want to do with it.

Augustus Miller · Answer

quick questions..

At what point after buying, rehabbing, renting do you refinance??

What is the recommended years to wait before refinancing?

Kevin Sobilo · Answer

@Tim Lovell, there are as many ways to invest as there are stars in the sky! So, its hard to give really specific advice without a lot more detail, but I'll try to throw out some ideas to get your thought processes going.

I'm going to assume you have no special knowledge, skills or experience and that what you are bringing to the table the the moment is desire, hustle, and some book learning about investing.

Example #1: Buy and hold.

If you wanted to get buy and hold rentals and you don't have enough for a down payment and you don't plan to do BRRRR and buy distressed properties to rehab then my first suggestion would be a partner.

If you need $20k for a down payment and closing costs and only have $5k, maybe you find a partner with $15k. Create an LLC where you own 25% and the partner 75%. Maybe you actively manage the property, if so, pay yourself 8% for doing that as well.

A small piece of a deal is better than no deal at all!

Example #2: BRRRR (Buy Rehab Rent Refinance Repeat).

If you feel you want to use this strategy look at hard money lenders. They should finance more based on the deal, but be ready execute your plan and if you don't have experience rehabbing a property perhaps a mentor of some kind would be prudent.

Hard money is expensive, so make sure you have a good plan in place before considering this. Ideally using hard money is better suited for someone with experience in my opinion.

how to finance that first property

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