Hi, ive been saving money and working on my credit score for 2 years now.
ive sat down with a couple bankers about getting a single family home to rent out.
my income switched to schedule c last year so i cant seem to qualify for a 30 year fixed mortgage.
One bank offered me a 20% down 20 year loan at 4.75 but it is an a.r.m. where the rate changes in 5 years.
is this a good way to go? It seems im trading cashflow for equity. Since im planning to grab more and more homes, the equity should be good for me to secure more loans in the future??
You can invest the slow, conventional way, or you can invest the fast, unconventional way.
The way you’re approaching this is the slowest, HURDLE-RIDDEN way possible.
Instead of conforming to ultra-safe, less profitable financing strategies, that will take you forever to benefit from, you’d do yourself a favor and learn how to negotiate bargain/SELLER financing for yourself.
There’s an axiom in real estate that many follow; “You give the seller his price, or his terms, but not both.” That is, you must have a bargain on one, or the other.
Let me give you a quick, true story, along with a link to a report I stole from Robert G. Allen that describes how to either bypass a bank, or get financing without a down payment.
No Bank/No Credit Check: I bought two board and care facilities by taking over the seller’s existing loans. I traded a house with equity as a down payment, and the seller took a note for the balance remaining. I got in for no upfront cash. Could you do this on a house by offering the seller 10% down and taking over his existing loans, and creating a note for the balance? Yes.
No Bank/No Down/No Credit Check: I financed a 2-year-old, five-bed, three-bath home by showing the seller how he could save his credit, and walk away without coming out of pocket, simply by deeding his house to me in return for twenty bucks. He agreed, and I gave him twenty bucks. I flipped the financing to a new buyer and put $50k in the bank.
No Bank/No Credit Check: I financed a small apartment building by trading a rental house for the some apartments. I took over the seller’s loan, and I upgraded my cash-flow instantaneously.
Here’s the resource that will show you fifty different ways to either get financing without down payments, or without banks, and/or without a credit check.
Don’t take the first “no” you get from a bank as the final “no”.
Talk to other lenders and see if they will qualify you under residential terms at lower rates.
If that doesn’t work, you can explore doing a JV deal with someone who can qualify for better financing.
I personally never recommend using any long term loan (15+) that isn’t a fixed rate. You don’t get as much benefit from inflation.
Javipa was right in saying that this method is in fact very slow going. If you invest in real estate with the intention of growing a massive portfolio you must get creative. Two ways to do that is by using seller financing or working with a wholesaler to purchase properties for no money of your own thanks to commercial loans based of off ARV (after repair value).