I’m learning a lot from the answers to many questions posted in this board. I appreciate the info and knowledge that the experts share. I have a question that I’m not able to look up a ready answer for on the internet. I’m hoping someone here could give me his/her 2 cents.
I’d like to purchase a rental property that already has a tenant. The property itself has been rehabbed by the current owner looking to sell it. The asking price is reasonable enough that the monthly positive cashflow from the current rent would be about $500-$600/mo. Would a bank finance 95% of the price (the rest would be my downpayment) if it’s an income producing property right off the bat and the estimated mortgage payments are very much covered by the rent?
Additional background info. I have very good credit, and while I can put down 20% it would really hurt – and I feel it wouldn’t be an efficient use of too big of a chunk of my hard earned cash. I’m not looking for “no skin” as some phrase it, but maybe put down just 5%. I also have two other higher value rental properties acquired over the years via traditional bank/mortgage financing, along with the house I currently live in. So I already have three mortgages in my name.
I haven’t checked my current credit score yet but prior to buying the two rental properties I now have, my score was over 800 (4 years ago). I also always pay off credit card balances every month, and I’ve never been late in paying mortgages in all three properties (they’re automated).
Would a bank finance 95% of this income property considering I have mortgages on three others? Would an alternative non-traditional financing source be a better option?
Would a bank finance 95% of this income property considering I have mortgages on three others?
Unfortunately, the days of high LTV N/O/O properties are long gone. I would suggest that you find a mortgage broker familiar with investment property options. He/she will be able to review your situation and offer eligible programs. Don’t shop around and provide your SS# to a variety of loan officers, brokers.
If you are involved in any type of local REI/Investor Club ask them who they use/recommend.
The calculation is just a rough one based only on a quick 30-year mortgage calculation. It just caught my attention this past weekend and I’m still trying to gather data, including how much the tax is. The property is listed at 77k, a 100 year old 3 bedroom house that’s rehabbed inside. It currently has a tenant paying a $1050/mo rent. The listing agent will provide spreadsheet of cashflow information in a spreadsheet. I don’t have this yet.
It was bought in 2004 for 47k, presumably before being rehabbed. I don’t know what the gotchas are yet but will do due diligence if worth pursuing. After all, why would the seller let go if the cash flow is very good? The financing situation is what I’m reviewing in case this proves to be worth pursuing.
Thoughts:
You really need to find out how long people are willing to go on a NOO loan. You may be able to get 30 yrs, you may not. Ours are on 10 yr amortizations. Banks often are leary of loaning for 30 yrs on an investment property.
A good rule of thumb is having the rent be 2% of your purchase price. This almost certainly guarantees you’ll cash flow. For $1050/mo rent, I’d want to get this place for closer to 50k.
As for why the seller is selling, who knows? They may want to cash out for something bigger and better. Maybe he just rehabbed this and put a renter in so it would be attractive to an investor. Maybe he rehabbed and couldn’t sell it immediately so the renter is helping cover the costs until it sells.
Take what the listing agent says with a grain of salt. YOU find out the property taxes, get an insurance quote for LL (or NOO property) insurance, look for any items that need repair, etc. They’re going to paint the picture of how this is positive cash flow because of low maintenance, 30 yr term, etc. You need to know going into it if you’re going to be able to get your payments over 10, 15, 20, or 30 yrs so you’ll know what you need to buy this house for.
I don’t know if this is being done these days. I know it was being done 20 years ago. If I am mistaken, please correct me and accept my apology.
Is there a way for the current owner to take back a second mortgage on the property? You could go conventional for 70-80% and have him take back a second for 20-30%.
95% LTV on a N/O/O property is not going to happen with a bank in today’s world. I doubt that you will find a private financing source that will accommodate those parameters either.
Lender’s will want you to have some “skin in the game”
Thanks. I’m not 100% on this deal anyway. I can put down the 20% no problem. It’s just that the last time I bought a NOO investment rental property was 4 years ago (I know) and I was able to put down 10% with no PMI (I know, different times). The latest info on the property is that the tax is $2,136.
I’m only half-hearted on the deal so I probably shouldn’t even bother. I have to be 110% behind something to spur into action. Thanks for the inputs.
hello,
I appreciate the info and knowledge that the experts share.
According to me Property investing has become one of the first choices for both new and experienced investors, and a “property investment industry” has appeared and grown rapidly.