Any responsible way to recoup down payment for Investment Property?

Question

My question is this: Is there any reasonable way to recoup the %20 down payment my bank is requiring for an investment property I'm looking to purchase. I'm new to RE investing and looked through the forums and didn't come across anything that matched my question.

The deal is this: The property is %85 complete (new construction). It will have an ARV of approx. $68k (county assessment), and approx $75k (comp. market value). The owner has accepted my offer of $46k. The hold up for me is the banks in my area are all small community banks requiring %20 down payment for either type of loan, personal, construction, commercial. I plan to use the property as a rental as it will be a great cash flow property.

What would you experienced folks suggest?

Thanks for your input!

Rob K. · Answer

Within the last couple years, I got two HELOC's from Huntington Bank and two from Wells Fargo. (Wells Fargo will do up to four, so I can get two more if I want.) These were on investment properties. The LTV's were low. I think 65 or 70%. Also, I had to own the house for at least a year. Otherwise, they would base the value on the purchase price.

Tim Delp · Answer

You can typically look at a cash out refinance based upon appraised value once you have owned the property 1 year.  Also be careful about always looking to take all your cash investment out of your rentals, good way to get over leveraged, nothing wrong with having a little skin in the game and some good cash flow to protect you when markets change.

Kent Anderson · Answer

Kyle, one more thought, and i'm sure i'll get ripped on this one by the institutional men and women but:

It is Bad Strategy to use the equity in your home (HELOC) to buy investment property or discounted notes.

If the deal goes up side down and you can't pay off the HELOC lender WILL foreclose on your residence.

Don't blow a perfectly good marriage for one deal.

It ain't worth it. You don't need the deal that bad. Take your time, plenty of owner financed or sub 2 deals out there.

OK, maybe a HELOC for very very small transactions (eg. 4k dwn pmt) where you have quick capital to easily pay off the HELOC.

Hope that helps, Kent

Kent Anderson · Answer

Kyle,  good thinking.

Here is an valid alternative purchasing technique to consider: making your offer “Subject To the 1ST “.

Yes, there are risks mentioned later but it is a great way to buy real estate. You will save thousands of dollars in loan expenses, you are not personally liable for the debt and the debt will not show up on your financial statement… to mention a few benefits.

Huge possibilities for servant leadership buy provide many benefits to seller via partial interest back to seller for participating, saving and maintaining their credit, on and on sub to the seller’s needs.

Yet, most importantly, if you are buying with SD IRA money, the financing is acceptable as long as the property is the sole security for the loan.

As for SD IRA purchases, note that there may be other may be other Disqualified Transaction or Disqualified Party rules to violate but your plan custodian/administrator can help you eliminate that risk.

So do your research and due diligence, you do not want to blow your entire plan because of one transaction.

There are others risks but this is just an idea that needs researched so do thorough due diligence before you jump in.

The most obvious risk, the lender in 1st position can call the loan if the property is not owner occupied so you need an exit strategy for that scenario.

Read your deed of trust beginning to end and Search for the word “acceleration” and you’ll learn a bunch.

If the 1st is a local bank do NOT buy sub 2. 99% of the time local bank will call the loan. Although if it is a “To Big To Fail Bank”, give the technique very serious consideration.

Sub 2 buying is a full two or three-day seminar so again, do your due diligence and research the topic to the hilt and it will soon be the only way you buy property.

Blessing to your effort, Kent

Rob K. · Answer

Theresa K. Wells Fargo will use the purchase price as the current value if you pourchased less than one year ago. After one year, they will do a drive by appraisal.

Homer Tipton · Answer

If you have another house or other asset you could ask your bank if they will let you use it for collateral instead of using your cash.

Tamara R. · Answer

@ Theresa K.--that could be. We have owned this property over 15 years.

Theresa K. · Answer

Tamara  R.:  Mine is free and clear also.  We bought this property in Feb 2012 so maybe it isn't seasoned enough to meet their underwriting requirements.

I wanted the HELOC for the same reason as you - no cost.

Tamara R. · Answer

ALso, they absorbed the entire cost--the only catch is I have to pay them $500 if I close the account before 2 years is up.

Tamara R. · Answer

I was able to get a HELOC on a rental property from Wells Fargo a couple of months ago.  However, I own the property free and clear and they would only loan me 60% of the appraised value.

Any responsible way to recoup down payment for Investment Property?

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