Investment Mortgage Guy

Financing your next investment property purchase may seem like a daunting task in light of this tight credit market. Claiming that you can do it for no money down may seem hokey or even unrealistic. I have been helping investors purchase real estate for 13 years in the Twin Cities market have a great system to help people buy up to 3 investment properties for very little money out of their pocket. Let me explain how it works.

The magic starts by utilizing the maximum potential of two investment loan programs.

The first loan is used for the aquisition and renovation of your investment property. Yes I did say renovation. To use this system and loan program, there has to be some renovation required on the property. The minimum amount of rehab required is $10,000. It’s actually easier than you think to spend $10,000 on a home. Buy new appliances, paint and carpet and you can probably get there. Most of the good buys today that investors are looking for require some type of renovation work. The second requirement of this loan is that the property needs to appraise for 25% more than the aquistion cost and renovation costs added together. For example, if you buy a property for $50,000 and spend $25,000 on rehab costs, the home needs to appraise for at least $100,000. Warning! The bank does require that you escrow 20% of your loan amount in a secured savings account with them as collateral during your renovation. This money serves as a security deposit for both you and the bank if something goes wrong during construction. As long as everything goes correctly and you refinance into our second investment loan we are going to do, the escrow money comes back to you. This is an important key to our program. You have a six month time line in order to complete your work.

For the second loan we utilize Fannie Mae. Fannie has no seasoning on a refinance which means they will use the appraised value when they consider our loan to value ratio. This is an important key. If we were to use Fannie Mae directly on the purchase of this property, we would be required to put at least 20% down. By doing it on the refinance, we get the benefit of a long term – low rate financing package but also get the benefit of using the appraised value and no down payment is required. No cash out is allowed with this loan program.

Closing costs on the purchase can be paid by the seller and since we aren’t using Fannie Mae for that, and there is no limit on the amount the seller can pay. (Fannie Mae limits you to 2% of the sales price)

Once your refinance is completed, you are now into this property for very little cash invested. I see nothing fundamentally wrong with that as long as you are cash flowing on the property. In this real estate market, you can cash flow on property in any area of the Twin Cities utilizing this program.

The reason I reference 3 properties in the beginning of this article is because that is all Fannie Mae will allow you to finance with them. After your first 3 purchases, things will get a little harder and a little more expensive, but you can still follow a simillar system and limit your cash invested.

Rob Bonahoom Mortgage Coach