I have been browsing through the forums for a few days now and have really appreciated all the advice. I’m a newbie and would like some advice on my situation.
I would like to purchase a small condo/townhouse near the local University and rent it out. I want to start small and found some really good properties for 40k - 50k. I know that I can’t get a mortgage loan from the bank for a mortgage this low. After reading through the forums it was suggested that I go to friends or family to borrow the money or go to a hard money lender.
I’ve decided to try the hard money lender. With this said here is my situation. I am currently renting and I don’t own my home. Why? In all honesty it is cheaper. I have a roommate and extra cash in my pocket.
If I took out a hard money loan to purchase the property and then refinance the property through a bank I make more than enough to cover the mortgage for 6 months if empty. My question is if me not owning a home would make me a ‘bad candidate’ for the loan? My credit is ok and my income is good. Should I become a home owner before I jump into investment properties?
ok, this is just a personal opinion, so please take it for what it’s worth.
I do see how it can be cheaper to rent, especially depending on the area that you live in. Sometimes mortgage rates can be higher than rental rates. But, it would seem to me that you may not be taking one thing into account. Have you considered the amount of money that you are throwing away in the form of a rental payment which is only going to build someone elses wealth.
Also, you mentioned having a roommate, which obviously reduces your cost even more. But, nothing says that you can’t have a roommate if you also happen to own. If you own the property, you make the rules.
At any rate, I wish you the highest amount of luck in your investing. I’m still a noob myself, haven’t been able to secure my first deal, so my advice may not be worth much. Happy new year!!
Thanks so much for your comment. I have thought about it and I have heard the same from other people about renting. You’re correct I am throwing away money renting…definitely gives me more to think about.
Second, I would like to ask where you heard that you cannot get a mortgage for an amount of $50k or so? a few months ago, as I was planning my move to AK, my mother asked me to see if she how high of a mortgage she could get on her fixed income amount of $600 or so a month. I spoke with a mortgage broker and he stated that with her income, she would only qualify for a mortgage of around $30k or so.
Also, have you considered purchasing a condo for you and your roommate to move into? According to my financial calculator, a mortgage for $60k with 10% down at an interest rate of 10% (pretty high from my understanding) for 30 years is $473.89. not including PMI and other costs, but I would guestimate that all your costs would total around $600 to $800, depending on condo association dues.
Either way, split those costs down the middle, and it would seem to be a pretty sweet deal all around and you would be building your wealth at the same time. Plus, if you purchase well, you will probably have a decent amount of equity in a few short years which you could borrow against to advance in your investing.
Sorry for the rambling. I have been spending a ton of time reading and listening, watching and learning. Again, I hope everything works out in the best for you. And, welcome to the forum.
These days and for the past few years, renting vs ownership is the prudent move. With real estate prices falling, there’s no advantage to homeownership if the property has declined in value by 50%. The answer is never a one-size-fits-all.
Rogelio,
Many banks in this lending environment are not interested in doing mortgages for less than 50k. That makes it harder for lower income folks to buy houses and basically makes the cheaper houses mostly for investors.
there are also some cost that are 'fixed" in a finance or refinance, if its a $200k house or a $40k house, and those add up, when you get into loans under $50k the cost can be a high enough percentage of the loan, that it gets into predatory lending,which the government doesn’t like,so most lenders just don’t mess with them
Rogelio,
We’ve only done plain vanilla loans from banks on loans (haven’t used private or hard money on anything). What I’ve seen from regular banks is that smaller “local” banks have more flexibility in lending and might be willing to lend on smaller amounts. As Andy said, some of those costs are the same for cheap or expensive houses so you have to make it worth the bank’s time to make the loan. In that case, you might be able to package a couple or few homes together to get the loan amount up higher. We’ve done that several times. We would put one house under contract and then search for a couple others to bundle it with. I’ve had our banker tell us that we needed to go find more homes so the loan would be bigger.
Your chances of talking to someone at a smaller bank who can actually make decisions is better than at a larger bank. Many small banks are portfolio lenders who service their own loans so they can have more flexibility in their policies for lending.
wow, this has been a most informational thread. These are things where it’s a classic case of unconscious incompetence here. I didn’t even know that I didn’t know. LOL.
One other thing to realize is that it’s not easy to get started in this business. The chances of someone with zero LL’ing experience going into a bank and getting financing on 3 or 4 houses for their first deal are really slim. Once you can show you have experience, doors start opening up. So up front, a person could expect to use more of their cash to get into a couple deals (from a normal bank financing perspective at least).