I currently have one rental property. I would like to buy more and have a group of property having 2 to 4 units in each.
My issue is going to be financing. I do not believe I want to use Hard Money loans because I want to keep these properties, I would prefer not to wholesale them. I do not have the cash to buy outright. I have located a few properties that are already below 70% LTV if I were to buy them at their current price.
So should I try to see if a small bank will loan me the money, or should I go wholesale some properties and try to raise funds that way. I would not mind a private money investor and I know they do not want their money tied up long term but I am not sure how to move forward.
Do you have money for a down payment? Most small banks will want about 25% down. We’ve seen some go for 15% down and even less than that, but I would go in with the expectation of 25% of purchase price down. We do commercial loans (for the bank’s own portfolio…they don’t sell the loans off) for our properties. Our experience has been banks like to do 10-15 yrs max term for these loans. We’re currently getting around 5.5-6% APR.
Private money is going to have higher rates than that. If you could get private money with less percentage down, that may be a reason to pay a little higher interest rate. If there was no other advantage to go with private money, I’d do the banks instead.
I do have some money to put down. I do not have 25% though. I am looking for a ten year loan. I would not want to go over that. I have done the numbers, to include vacancies, maintenance, care and upkeep of the property. Taxes and insurance as well. Running those numbers and actually over inflating the expenses I would still have a positive cash flow each year.
OK. You’re right. You can make it work over a 10 yr term if you buy right. That’s the key to any REI transaction obviously, but it’s even more important if you accelerate the payout like this. I think not having the capital for the down payment is a large part of the problem for many new and would-be investors. My wife and I started out on a credit card. We got a really low rate special offer and took advantage of that for the down payment and rehab of our first property. You can still check out your local banks. Some of ours said they weren’t currently loaning money on investment properties. Others wanted 25-30% down. We do work with one that will do 15% down. So you may be able to find someone to go less than 25%. It would be worth talking to people to see if you could work it out. Hope it works out for you.