Down payment on an investment property.

[RE in DC]

Does anyone know if you HAVE to put atleast 20% down on an investment property if you go through a traditional bank loan?  Are there any ways around it?  Maybe I could rent out my primary residence now and declare my fixer upper as my new primary residence?  Any suggestions if 20% is the norm? Thanks for the help.

[justin0419]

You just have to follow that bank's guidelines.  I've had banks tell me anywhere from 15-30% down, but the bank we use bases it off the merits of the deal.  If we buy right, we can get 100% of the purchase price.  This is from a local bank.  You won't find that deal at a large corporate bank.  They have strict guidelines and zero leeway to work with you if you're not following their exact numbers.

[RE in DC]

Thank you for the help Justin.  I am guessing a good plan also helps.  Any tips for how to find a good bank, or should I just start researching?

[furnishedowner]

RE in DC,
Many beginning real estate investors have started out with their first residence that then becomes their first rental.

It is always EASIER to buy a residence than a rental.  And if you hurry, you can get the $6500 FREE home purchase money from the Federal Government.  Check with your tax advisor right away, don't miss that bus!

You need to see if your present home makes sense as a rental financially.  Your next purchase could be a duplex or a house with a guest cottage.  ALWAYS TRY TO GET A FREE RENTAL UNIT WHEN YOU BUY A RESIDENCE.  Those small garage-guest-basement units can pay a large part of your mortgage and generate tax savings, especially if you furnish them and rent them out for a higher dollar.

I have known lots of beginning investors who were "serial home buyers".  They always bought the worst house on the best block, fixed it up and moved on in 12-24 months.  They made sure to file their taxes at least 1 year from that address.

Good luck on your quest.

Furnishedowner

[Bluemoon06]

Make sure you are talking to the right people.  Remember that mortgages are made to the general public and they are made toe investors.  Make sure the banker you are talking to deals with investors.  They will understand what you are doing.  My bank currently looks for 70% equity in the deal.  That includes down payment or just equity.  If you buy a house that has an After Repaired Value (ARF) of $100k and purchase it for $40k put $10k into fees and $20k into rehab.  You have $70k in a $100k house.  You won’t have to leave any of your own money in the deal.  Because of my “relationship” with my bank (track record) they will go to 80% for me.  But any deal that doesn’t meet the above minimums isn’t worth doing for me anyway.

[ReCoachDennis]

Hi RE

Blue is dead on.

You have to work with lenders that know what investors need and want. Go to your local rei club and get referrals. They'll have done the work for you already.

Secondly to minimize the down payment:
1) Make sure you get a good discount off the ARV to fall within the loan amount repairs, costs etc)
2) See if owner will finance for a year or more
3) Bring in a credit/cash partner so you don't have to put up money or your credit to get the deal done

Dennis

[L Rubijevsky]

I would follow what the bank says specifically because they are in charge of most of the money in this situation.  I cannot say that I have heard of 20k being the norm but I am not sure where you are located and prices fluctuate all around the country.  Good luck and I hope you figure everything out!