I have $80,000 to my name. I want to buy a rental. I think I should start small. I have excellent credit, but no job. I contacted a realtor to help me find some rental properties. He found some. He suggested a non bank lender. Here is what they offered:
-Private loan
- 50% down
- Interest rate: 9.9%, interest only with a balloon payment
- $2000 finder fee
- $895 processing fee
- $450 appraisal fee
- $750 attorney fee
- Prepayment Penalty 1st year , 12 months interest, but no less than 3% of the loan amount
- Loan will be for 3 years with option to extend to 5 years based on payment history
I don't know. What could POSSIBLY go wrong?
What if the lender decides NOT to let me refinance? Then I will have to sell.
Can they call in a loan? I don't know, does that happen often?
If they DO let me exercise the 5 year option, how does that work? How much will that cost me?
If they Do let me refinance, does that mean I get hit with another $4095 in fees?
My realtor says this is a great loan. He says a $60,000 loan at 10% interest would be about $500/month. Add $200/mo for taxes and insurance, about 700 /month.
Here's the hypothetical:
-Find a 120,000 quad
- I put $60,000 cash down
-take a loan with these terms for another $ 60,000
- $2000 / mo gross income
-$500 interest
-$200 / mo taxes and insurance
-$200/mo management fee
-$100/mo misc.expenses.
$1000/mo profit x 60 month loan term = $60,000 profit.
Worst case scenario:
At the 3 year mark ( 36months,) they chose not to refinance. Let suppose I could sell it for what I bought it for, 120,000.
Repay the $60,000 loan, I'm left with my original cash down payment, plus potentially $36,000 profit.
Even if everything goes perfect, I still have to consider costs associated with a pre -purchase inspection, title transfers, title insurance, and closing costs, right?
What do you all think? Best regards,S. Sparks
