Need some direction on financing rental properties. Currently own primary residence,( mortgaged 30 yrs, owe 130,000) purchased in 2007. Credit score 780-784 depending on where I look. Looking to buy rental properties ASAP because there are currently a lot of great deals on SFH’s and doubles in my area ( both foreclosures and non foreclosures).
Here is the issue: I currently don’t have 20% down which most lenders require. SO i need some ideas for creative financing to get some properties and cash flow… Any ideas are greatly appreciated.
On a side note. I have heard and read a lot of various information on whether it is better to buy with an LLC or just have good insurance policies. And LLC business credit lines?Any opinions either way???
With an LLC, you might be able to get a credit card for a store such as Lowe’s or Staples, but a new LLC isn’t going to get you anywhere with bank financing for properties. My experience is that it might actually close a couple doors since some banks won’t finance properties titled to LLCs.
I suggest you talk to a local bank as they will be more flexible than larger banks. You can also seek private money or owner financing.
if you are getting a really good deal on the properties you can buy with hard money, which will generally lend 70% of after repaired value (ARV), then after its rehabbed and rented you can go from the hard money loan to conventional, since it is a refinance, they will base how much they will lend on the appraisal, not what you paid, as long as you have made improvements to the property.
The catch is the second appraisal, if it comes in substancially lower than the first you will have a problem, as the bank will generally refinance 75% of the appraised value
watch your debt to income ratios, if you have plenty of room you can get some cash, let it sit in your account for 2 months then refinance,but if cash ‘appears’ in your account within 2 months of the refinance the bank wants to know where it came from, and they don’t want you to tell them you borrowed it
I recommend looking at rehabs on homepath.com site. Gov’t backed loans and require 10% down these days for investors.
Also credit unions give favorable terms so you want to check them out as well.
As for LLC. do not waste time. What you do is place the home in the LLC after you close. You will need to finance in your name though.
YRush is right!!!
The reason for 20% down is that no mortgage insurance is available for non owner occupied properties.
The homepath.com homes are the only ones I know of that have a lower down payment. Since Fannie Mae owns the homepath homes, they don’t require MI. They also don’t require an appraisal for homepath home. This alone makes homepath homes more attractive for invesors.
Another option is to buy cheap fixer uppers, rehab them and after 12 months you can do a cash out refinance.
The homepath is a great way to go. The NO MI factor alone can save you hundreds of dollars a year.
To be clear, if you go with hard money and rehab you will have to wait one year before you can cash out %80 on the appraised value… Be sure to document all repairs, keep invoices and take before and after pics.
I just started a similar thread before I saw this section. :rolleyes
Have you thought about going owner occupied in a building? You can get into a place FHA with %3.5 down and even go 203K for a rehab. How is you current home financed?