I have been asked many times how I started in real estate investing. Many people thought I fell into a lot of Money and was able to put 20% down on everything. Actually, I got started when I was 22 years old with a negative net worth and purchased my first Property with Zero down and brought Zero to closing. I proceeded to buy my second property as well with no money down, upgrades included and no money brought to closing. How did I do it and what should you look for?
My first property was a condo where they were converting apartments and they had started the process of selling each unit individually. When this happens, there is usually a sales office on site. I like this strategy because there are usually preferred lenders that work with these types of properties. As an incentive to use the preferred lenders, the sales office will take off a substantial amount off the asking price, throw in upgrades, pay for closing, or anything else to get you to purchase the property. The reason they use the preferred lenders is to ensure closing goes as smooth as possible. It saves everyone time, money and head aches.
I was able to negotiate the price down, throw in closing costs and get a 100 percent loan at a 5.5% interest rate. This was my first property and I learned quite a bit. Here are some of the things I would have done differently, and did do on my second no money down property.
1) Get a 80 / 20 loan ------ Anytime one lender gives you 100% of the value of the property, they will also ask for mortgage insurance. Each month this could add 100 - 200 dollars on your payment. This is referred to as PMI or Private Mortgage Insurance. Once you have 20% equity in the property, the PMI will be eliminated. What would I do differently?
In retrospect, I would have gone through a broker to help me get a 80 / 20 loan. This means I would carry a 1st Mortgage at 80% value of the property and a second Mortgage from a different bank for the remaining 20 % value of the property. This second loan usually carries a higher interest rate but monthly payments are much less then the insurance and you can write off the interest during tax season
2) Roll in Upgrades into the Loan ------ For every $10,000 dollars you add on to a 30 year loan, you add about $60 dollars extra a month on to your mortgage. I regret not adding upgrades to the property since these upgrades yeild higher monthly rent. Some upgrades that attract renters and yield higher rents are: Marble or Corian counter tops, wood floors, tile, new paint, new carpet, new cabnets, stainless steel appliances, walk in closets, central heat and air, etc...
3) Extra Parking ----- I wish I would have opted into receiving an extra parking space for the property. I have learned that renters love more space and are willing to pay extra for it. This is especially important in areas where parking is limited. It is better to own an extra spot since you can sell or rent this out at a later date.
My first property was a condo where they were converting apartments and they had started the process of selling each unit individually. When this happens, there is usually a sales office on site. I like this strategy because there are usually preferred lenders that work with these types of properties. As an incentive to use the preferred lenders, the sales office will take off a substantial amount off the asking price, throw in upgrades, pay for closing, or anything else to get you to purchase the property. The reason they use the preferred lenders is to ensure closing goes as smooth as possible. It saves everyone time, money and head aches.
I was able to negotiate the price down, throw in closing costs and get a 100 percent loan at a 5.5% interest rate. This was my first property and I learned quite a bit. Here are some of the things I would have done differently, and did do on my second no money down property.
1) Get a 80 / 20 loan ------ Anytime one lender gives you 100% of the value of the property, they will also ask for mortgage insurance. Each month this could add 100 - 200 dollars on your payment. This is referred to as PMI or Private Mortgage Insurance. Once you have 20% equity in the property, the PMI will be eliminated. What would I do differently?
In retrospect, I would have gone through a broker to help me get a 80 / 20 loan. This means I would carry a 1st Mortgage at 80% value of the property and a second Mortgage from a different bank for the remaining 20 % value of the property. This second loan usually carries a higher interest rate but monthly payments are much less then the insurance and you can write off the interest during tax season
2) Roll in Upgrades into the Loan ------ For every $10,000 dollars you add on to a 30 year loan, you add about $60 dollars extra a month on to your mortgage. I regret not adding upgrades to the property since these upgrades yeild higher monthly rent. Some upgrades that attract renters and yield higher rents are: Marble or Corian counter tops, wood floors, tile, new paint, new carpet, new cabnets, stainless steel appliances, walk in closets, central heat and air, etc...
3) Extra Parking ----- I wish I would have opted into receiving an extra parking space for the property. I have learned that renters love more space and are willing to pay extra for it. This is especially important in areas where parking is limited. It is better to own an extra spot since you can sell or rent this out at a later date.
This post first appeared on Real Estate Investing - Inside The Mind Of A Real, please read the originial post: here
