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I have a goal this year to purchase one investment property in Northen California where I live. I have found a broker who says he can help me find a cashflow investment with 100% financing. To me this is exactley what I want but seems to good to be true, especially in todays real estate market. I want to keep a level head and not get electrified about this type of investing. What should I be aware of when working with a broker on this type of investment? What do I need to be careful of? How can I protect myself from getting suckered into an alligator?
Some things to consider:
a) sometimes a property can depreciate, not only appreciate like it has in many years
b) The housing boom is leveling off. In some areas, more than others. So be careful. 100% financing, if the house does not appreciate enough, you could come out losing money (since you need to recoup all your interest payments in an increased selling price).
c) Are you planning on renting out the property to tenants? In which case, you might have to spend money on repairs or other areas.
I will agree all the property I have ever bought ( short of the home I am living in now) has been either 100 percent finance or at least less than 1000 dollar down.
Now of course you "HAVE" to have that emergany fund for a new hot water heater, your renters leaving with holes in all the walls and all the rugs bad.
if it happened, you could not rent it out and would still have payments.
Also you have to have a back up fund for this in case: They don't pay you, it takes about60 to 90 days from the time you start the eviction process to when you actually get them out. Then another 30 days to fix it back up and rent it out. So you have to have that 3 or 4 months of money to pay out just in case it has to set empty.
So don't buy it unless you can afford to keep it.
Also remember in rentals, that 2 am phone call when the pipe starts leaking, the door will not close right, and so on.
Next if you do rent have a professional lease, and never let them move in without the lease signed and a background check done.
My last property should have worked out that way, but a wind storm took part of the roof, the hot water heater started leaking and the heater coil on one of the heaters went out.
I won't see a profit on that one for at least two more years now. Add to this three renters this last year alone, and the clean up cost ( plus one renter took off with the stove and the frig when they left)
I am just wondering about the 100% finance issue. I have heard this is quite common when buying a personal home, but not with "rental property". Every bank, broker, etc. told me I would need 60% down to purchase Rental Property. I was able to get a 20% down loan because I agreed to live in the building I bought- it has 4 apartments.
So where are ya'll get these 100% loans for rental property??
LeeAnn, You can pretty easily get 100% financing for rental properties.. I finance them every day for clients.. Many of the banks are getting out of it, but they still are around...
bpc, To answer the first question, about the cash flow.. Make sure you are aware of the loan type.. You wouldn't want to unknowingly be on an option arm (not that you can get these at 100% for investments) but many brokers talk clients into these because they have very low minimum payments, based on 1% start rate. However you will have neg am and owe more on your house than you began with!
Yes, 100 percent and never more than 1000 dollar down every day of the week on rental properties. First of course there are people who could go in and get a personal loan with good enough credit.
Normally the lender will be looking at not only the apprasial value but also the actual selling value of other property in the area. If it is reantal, what is the rental history of the property ( they want to see the books)
But normally I look for "depressed" property ( ok they call me a slum lord around my town) I look for property that is almost foreclosed and where I can often assume the mortage or like the last one, it sat empty for a few months and had a crack addit living in it with no water or lights ( broke in the back door and was just living there)
For example that house I bought for about 15000, it is a two bedroom and the normal rental in that area for 2 bedroom is 300 dollars.
I have a crew I get from a local homeless mission and clean it out, paint it inside and out. For less than 3000 I put a new roof on it, paint it inside and out and patch a few holes in the walls.
I have another gentleman that works for me that put in some new windows glass and a new door. Through in a re-conditioned stove and frig and in about 3 weeks it was ready to rent.
Now I basicly break even on it for the first 5 or 6 years and may even over all lose alittle but after that it is paid off and making money.
But many I just buy from the owner with owner finacing.
Example the house four houses down that jsut went though the same type of up grade is listed at 50,000, I could probably turn my for 35000 or 40000 but I want it for a rental.
Now most of mine is in low income or minority areas ( or both) and I often get paid though government programs.
My one friend ( who I actually lease one building from and then sublease it out) has a bunch of mobile homes, you buy them for 10,000 each or less, and line them in a row. I think he even rents some of them weekly to get a higher return.
what about re-financing for rental property? I have at least 20% equity in both of my properties, which amounts to about $75,000. Anytime I have talked to banks, brokers, etc., they have told me they can't help me because rental property has to have a minimum of 60% equity, therefore they can not give me a 2nd mortgage, equity line of credit, etc. since I only have 20% down. I will buy the book suggested earlier in the post as soon as I get a chance. Is there anyway to get some of the cash out of my rental properties??
I can easily refi an investment property with that kind of equity in it.. What State are you in? I have a license in over 30 States.. If you have more questions feel free to ask!
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