Q&A: How do you get into rental properties with no money down?
Question by Pale Face: How do you get into rental properties with no money down?
I’m trying to get into real estate as a landlord in the Houston area. I have no down payment, but excellent credit. Thanks in advance for your help.
Best answer:
Answer by Real Estate Guy
First, with investment loans you need 20% or more down.
However, look long and hard at getting involved in this!!!
Even if you could find 100% financing, your rental income will NOT cover the loan. This mean that you would be covering the difference between your rent coming in and your mortgage payment.
For example. Lets say that your rental income is $ 1,000 a month. However, your mortgage payment is $ 1,500 a month. You would need to come with an additional $ 500 a month just to break even.
A rule of thumb is this: your total monthy expenses on a rental, including the mortgage, taxes, insurance shouldn’t be more the 50% of the total rent coming in. If you can get $ 1,200 a month rent, your total mortgage (PITI) shouldn’t be more then $ 600 a month.
You will look at this an assume that the other 50% ($ 600/mn) is profit. WRONG. This will cover upkeep, renting expenses and other costs.
You can’t; you have to have money to put down.
Know better? Leave your own answer in the comments!
You have to invest money to make money. Rental properties are lucrative after you purchase the building and get tenants, but you will have to see if you get get a large loan. Talk to your bank or credit union and check your state laws.
I know very few investor who use their own money to buy real estate. Whatever funds you have keep it as a reserve.
Understand, an investor buys houses at a 65 to 70% discount. This is always a hard thing to do. This is why many investors buy their properties from a real estate wholesaler.
A wholesaler knows it is a numbers game. Make a hundred offers a month and you will get about twenty counter offers, and out of them you will get about three within your price range.
Then you need to buy using a bridge loan from a private money or hard money lender. Bridge loans are short term loans with high interest rate and points that must be refinanced quickly with your more investor property loan that you get from a bank.
You can find these kinds of lenders and more information at your local REIA, real estate investor association.
Do an online search for a Houston REIA.
Ok Mr Pale Face. Its right. No BANK will give you money without investing your own money first. But only conservative people think banks are the ONLY place to get money. Not many famous or rich people got that way by being traditional and conservative thinkers. Think outside the box.
Even though they are harder to come by in todays market, there are alternative sources of funding. You have several options. You can prepare a phenomenal business plan and scout for private investors (people who have too much money and want to use it to make even more!) and hope you can get some assistance. There are government grants available to developers, especially if you are willing to work with HUD and Section 8 housing. You can try out a online loan communities like Prosper.com or you can even go for a hard money loan (sometimes called loan sharks – think, scary Italian guy at your door if you don’t pay). If you are willing to take the risk, there is a way. It will be a lot harder for ya, but again, whats the risk you want to take?
For investment properties that’s pretty much impossible. You generally need at least 25% down for commercial paper.
You MIGHT have some luck with bank REOs. Contact local banks and see if they are interested in clearing any of their REOs in exchange for 100% financing. If you have a decent business plan and strong credit they might be interested. It can’t hurt to ask. Bear in mind that with many of these you’ll need funds to repair them and put them in habitable condition so keep that in mind as well.
The requirements for loans on income properties are tougher than if you were buying a home for yourself, so you likely won’t find a “no money down” way to do that.
However, if you buy a duplex for yourself and rent out the other side, you might be able to find a lender that can swing something pretty favorable for you.
I recently went in on an older duplex with some friends and we rent out a couple rooms and got a no-money-down loan, you just have to show that you intend to occupy the property yourself.
With the market it makes it a bit easier. You need to find a property that is priced well below appraisal value. (these numbers are for example only and are probably not correct so don’t complain about the math) So for example you find a property that is on the market 130,000, but it appraises at 150,000. You will write the offer of 150K and ask the seller to contribute to closing costs to the maximum 3-6%. The sellers will come back and ask you to pay the higher commission costs and taxes on the difference, but this will allow you to get in with no money down. Just because a mortgage company can do a 100% loan or even an 80/20, it does not mean the title company and the state will let you off scott free. There are ALWAYS closing costs.
you need to find a desperate seller who will either reduce his asking price or inflate it so that if he is actually selling for say 100K but writes a proposal for 120K then all you have to do is ask for the 100K because it looks like you gave 20K down. Or, if the seller agrees to take a second position and will accept a promissory note for the down pay then you are gold
being a loan officer for a mortgage broker, those are pretty hard to come by anymore. They think that because it is an investment you should put your own money in it. The max LTV recently I have seen is 90%, where you would have to put 10% down OR potentially put 5% down and let the seller hold the second mortgage.
start saving your money.