Quote from @Taylor Davidson:
Good Morning all,
I purchased my first investment property in January of 2022 right before interest rates skyrocketed. My plan was to live in the residence while I fixed it up and eventually either rent or sell for profit. Since then I have made a career change from law enforcement to sales and this last year I have had to adjust to a pay cut and learning a new industry.
Additionally, in the last year I have managed to put most of my extra money into the rehab of the first property. The good news is I have finished most of the projects and the house looks wonderful. The bad news is I am now in a saving phase and if I want to purchase a new property in 2024 I will need to get creative. My goal within the next 12 months is to purchase a duplex and begin the house hacking process of living in one unit and renting out the other for a year while repairs are made. I am currently in the Memphis, TN area, but I have plans to relocate within those 12 months and purchase in another market.
My main questions for anyone who has been through this or has wisdom on the topic is whats your favorite creative way to purchase homes when you do not have a large sum of money on a down payment? My interest rate for this current property is too low to refinance and pull out money and it will take me a solid year with my current financial situation to save upwards of 10k or more (I am getting married next year which is a key factor in not being able to save more than I would like to towards real estate). I used a 3% conventional loan on my first home, so I believe I am still eligible for that as well as a 3.5% FHA loan. I am just curious what the best practices are and what direction I should take as I plan to slowly build my portfolio over time.
Bigger Pockets has been great thus far and I am excited to connect with people and start this journey. Thank you for any feedback even if its just to send a friend request!
Hello Taylor!
Firstly, congratulations on the progress you've made with your first investment property, the career change, and the upcoming nuptials! As you build your real estate portfolio, here are a few creative financing strategies to consider when you don't have a large sum for a down payment:
Seller Financing: This is where the seller acts as the bank. Instead of taking out a loan from a financial institution, you'd negotiate terms to pay the seller directly over a period of time. This can sometimes be negotiated with flexible terms tailored to your needs, e.g. the seller holds the note for some time and then you pay a balloon (lump sum) and refinance the property with a regular mortgage lender.
Home Equity Line of Credit (HELOC): Even though you mentioned refinancing might not be ideal due to your low-interest rate, a HELOC may allow you to tap into the equity you've built up in your property without refinancing your primary mortgage.
Private Money: Seek out private investors who might be willing to lend you money for your next purchase. This can be friends, family, or private lenders. The terms can vary widely, so make sure it aligns with your investment strategy and capacity to repay.
Partnerships: Consider partnering up with someone who has the funds for a down payment but may lack the time or expertise to manage a property. This way, you can leverage each other's strengths.
House Hacking with Multifamily Loans: Since you're considering a duplex, remember that you can get residential loans for properties up to four units as long as you live in one of them. The FHA loan you mentioned, which requires only 3.5% down, can be used for this purpose.
Lease Option: This is an agreement where you lease a property with the option to purchase it later. It can allow you to control a property and generate rental income from it, even if you don't own it outright.
Consider a Cross-Collateral Loan: If you have equity in your current home, some lenders may allow you to use that equity as collateral for a new loan, eliminating the need for a down payment on the second property.
Look into Down Payment Assistance Programs: There are numerous programs, both nationally and locally, that can assist first-time or even repeat homebuyers with down payments.
Wishing you the best on your real estate journey!
