Advice on investment property downpayment

Microsoft kingfishh
Aug 21 46 Comments

I have 40k in cash another 20k invested in funds, 15k in 401k that is it. I am planning to buy rental property of $300k out of state.
TC ~180, young, not married.

Min downpayment offered so far is 15%. I dont want to cash out from my investment and 401k also would like to keep 10k at least from my cash.
I am not gonna get more than 7k loan from 401k.

is there any lender who can give me 10% or less downpayment with/without PMI on an investment property?
#housing #investment #mortgage #property #rental

Edit:
- I have never meant I am going to take the money out from 401k, infact I don’t even want to take the money out from my other investmenta in ETFs etc. However I am consudering taking loan from 401k @6% which I get 7K max

- I am on visa, I will have a property manager.

- I am considering new constructions only, its a long term plan

- I currently do not own a house

- All I am asking is, do you know anyone who can lend me with less downpayment on insvestment property?

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TOP 46 Comments
  • Postmates Vfdw66
    I used to own rental properties in a state with really good home prices but the cost of ownership got really expensive over time to the point where I ended up losing money two years in a row. I sold the properties and invested in REITs. It’s still real estate and I got a 17% return last year without having to deal with renters, property managers, HOA’s, etc.

    I get the appeal of owning rental properties in another state but it can be a huge hassle. I won’t do it again.
    Aug 21 6
    • Postmates Vfdw66
      Yeah, I worked with a company that manages rental homes.
      Aug 21
    • Prudential / IT jacob4205
      thay didnt make things easier?, why did you lose on the rentals? too much vacancy?
      Aug 21
    • Postmates Vfdw66
      I had to manage the management firm. They always wanted to use expensive contractors for repairs, wanted me to authorize home improvements renters demanded, etc. I spent a lot more time on them than I expected.

      Why did I lose money? I bought new homes so they were in good shape initially but started needing new appliances, replacement flooring, landscaping overhauls, etc. after 6 or 7 years. They were all in an area that is prone to tornadoes and my insurance went up significantly after needing repairs after storms. Then you throw in renters who stop paying rent and refuse to move out, the occasional vacancies, tax increases on rental properties (more common than you think), increases in HOA dues, fines for stupid things renters do (parking on the lawn, wild parties, installing a satellite dish on the front of roof) and you can lose a lot of money really fast.

      I made a net gain overall but I got tired of dealing with it and opted for investments that I don’t have to pay much attention to.
      Aug 21
    • Microsoft kingfishh
      OP
      May I know the net overall you made? Thanks for explaining the other side of having property management
      Aug 21
    • Amazon / Mgmt Toy Boy
      Where do you find REITs
      Aug 22
  • Microsoft MyStapler
    Taking from 401k isn’t always a bad thing. Most 401k allow you to take a loan against it for a home purchase, with zero penalty. They simply have you repay it monthly back into your 401k with interest that goes to yourself as well.
    Aug 21 6
    • Microsoft MyStapler
      @sweetbruh very true, timing is everything. Housing and stocks are both at peaks right now. The point is that people are quick to say you should never borrow from a 401k when in reality, using it to buy real estate could do better depending on the market. Example: $50k in a 401k averaging 10% per year will grow to $80k in 5 years ($30k profit). If you use the $50k to buy a $250k home, the home will be worth $320k at only 5% per year in 5 years. That’s $70k profit.
      Aug 21
    • Shell / Supply/Log sweetbruh
      Totally agree, BUT you have to consider liquidity as well. Stocks can be cash in a day, a house will take a bit longer than that. Either way, a good portfolio should have both long term. Some guaranteed passive rental income and then stocks as well
      Aug 21
    • Microsoft kingfishh
      OP
      I wish your predictions would be true, but still its a prediction.
      Im quite confident on my career and i will try to double my TC in 2-3 years. But I don’t want to regret later for not making this call of buying something now
      Aug 21
    • Shell / Supply/Log sweetbruh
      That same regret could come if you do buy something now lol. Either way if it’s a long term investment it doesn’t really matter.
      Aug 21
    • Microsoft kingfishh
      OP
      Yea right, be it real estate or stock markets.
      Aug 21
  • Shell / Supply/Log sweetbruh
    Dude, be patient. I’m in a very very similar boat as you and you won’t find a loan without pmi if you aren’t putting down 20%. Also if you’re not putting down at least 20%, it’ll make it too close to not being cash flow positive when you consider all factors. Also go take a finance class or something, never ever cash out your 401k early unless it’s an emergency. Also with that tc, you should start maxing that out every year.
    Aug 21 1
    • Microsoft kingfishh
      OP
      I max out 401k every year, forget withdrawing 401k I don’t even want to take out other investments I made in index funds etc

      I will pay whatever remaining 20% within 6 months and get out of PMI and I am not really considering +ve cash flow when I don’t put 20% down.
      Aug 21
  • Prudential / IT
    asidopan

    Prudential IT

    PRE
    Moody's Investors Service
    BIO
    Multifaceted technologist, lead
    asidopanmore
    Your TC is quite good..why not wait a bit and save more? Opportunities dont end and it looks like rates will be low for a while
    Aug 21 2
    • Verizon nT7o5eQp
      I agree. I'm willing to bet that in the incoming timeline the properties may even be cheaper!!
      Aug 21
    • Microsoft kingfishh
      OP
      @nT I hope your prediction works out for you, but nothing can be guessed right in market
      @asi I will end up spending more, with this i will have a commitment
      Aug 21
  • Prudential / IT jacob4205
    have you checked biggerpockets.com, is has alot of resources such as hard money lenders etc
    Aug 21 6
    • Prudential / IT jacob4205
      watch the youtube videos and search brrrr method on their youtube channel.... thank me later
      Aug 21
    • Microsoft kingfishh
      OP
      I plan to buy new construction, so I don’t think brrr would work for me.
      Aug 21
    • Prudential / IT jacob4205
      brrrr method works on everything?
      Aug 21
    • Prudential / IT jacob4205
      you mean you have land and you are building a house from scratch?
      Aug 21
    • Oracle / Eng sweEng
      @above: you could do brrrr, only when you buy a property at a steep discount, rehab it, add value to the house and then do cash out refinance. With new construction you can't really do that
      Aug 21
  • Oracle / Eng sweEng
    Do you own a home now? If so try HELOC or do cash out refinance of your primary home. Putting less than 20% on an investment property itself will make it very tough to find lenders. Even if you find one, you can't get away from PMI.
    Suggest to get a property around 150k and get your feet wet. Build a proper team b4 venturing out of state. Its not going to be easy doing OOS Investing
    Aug 21 1
    • Microsoft kingfishh
      OP
      Updated the post with few edits
      Aug 21
  • Shell / Supply/Log sweetbruh
    OP, it sounds like you have some research to do around all of this. Jacobs comment about brrrr is great, but you also need to understand the risks. That largely banks on having a decent increase on appraisal once it is renovated so you can refinance and get some money out. If something changes or it doesn’t increase you need to have planned for that scenario.
    Aug 21 1
    • Microsoft kingfishh
      OP
      Well I plan to buy new construction, this is not really kind of side real estate buy/sell income I’m considering.
      Its a long term plan, I am on visa so I just want to give everything to property management.
      Fyi: Made some edits to OP
      Aug 21
  • Prudential / IT jacob4205
    have you looked into the brrrr method? buy, rehab, rent, refinance and repeat?
    Aug 21 0
  • Prudential / IT jacob4205
    never take anything from 401k
    Aug 21 2
    • Microsoft kingfishh
      OP
      I do not plan to take 401k at all, at max I will take loan on 401k which you get for 6% interest.
      Aug 21
    • Apple dr amazing
      Take a loan on 401k is “take 401k”. And that’s stupid, don’t do it.
      Aug 22
  • Apple j35a93
    You can get a take out a HELOC on the property and have that be part of your down payment. As long as the down payment is 20% you don’t need PMI, regardless of where it came from. I did that with the house I live, 10% down out of pocket, 10% down from HELOC.

    The one thing babe about this now is that you can’t write off the interest from a HELOC used for an investment property.

    You can always take out an equity loan against your stocks too but that might be a bad idea with a recession looming. If the stock value drops too low you may be on the hook immediately for repayment (from how I understand it).
    Aug 21 4
    • Microsoft kingfishh
      OP
      I don’t have a primary residence
      Aug 21
    • Apple j35a93
      No I meant that I did it when I purchased my primary residence. The HELOC was taken out against the same property I was purchasing.
      Aug 21
    • Microsoft kingfishh
      OP
      That is something I can consider. A banker had told me he could give me heloc only on my primary residence.
      I will check with other bankers too.
      Do you suggest any lenders?
      Aug 21
    • Apple j35a93
      Yeah honestly I’m not sure if you can do what I did on an investment property. I know you can take out a HELOC on one investment property for another but not sure about for itself. I ended up using a lender with umpqua bank. DM my if you want the specific lender.
      Aug 21
  • Oracle / Eng sweEng
    Whats the cash flow you are looking at when you are buying a new construction at 300k? I did infact the same thing. Got a new construction for 260k. Renting it out for 2k. No maintenance cost so far. All done by property management. Which state/city are you investing in?
    Aug 21 3
    • Microsoft kingfishh
      OP
      Orlando FL is the one o shortlisted over Dallas TX and Pittsburgh PA
      After paying 10% to property management and 50% for finding the tenant I expect nil. Its okay as long as its not negative
      Expected rent is around 1.7-1.8k
      I am looking for SFH with <$100 HOA, I don’t want to pay 200+ HOA for a townhouse

      Which city did you buy?
      Aug 21
    • Amazon / Mgmt Toy Boy
      @seeEng. Do these numbers look ok for your property. I’m in the market looking for cash flow positive properties so want to compare notes
      Aug 22
    • Oracle / Eng sweEng
      I bought in suburbs of Austin.
      My property mgmt fee is a flat one. Its 95$/month. Being a new construction the operating expenses is much much lower. HOA is less than 30$/month. Actual maintenance cost starts to kick in typically after 7 to 8 yrs.
      You didn't include the property tax which is pretty high here. I am cash flowing around 300 bucks a month. But more than that, Austin is primarily equity/ appreciation market. Mine has appreciated 10% in year and half. That will slow down moving forward. My plan is to sell it out b4 maintenance costs starts piling up.
      Aug 22
  • Prudential / IT jacob4205
    Im new to this, what does TC mean? total comp?
    Aug 21 1
    • Prudential / IT
      asidopan

      Prudential IT

      PRE
      Moody's Investors Service
      BIO
      Multifaceted technologist, lead
      asidopanmore
      Yup
      Aug 21
  • Prudential / IT jacob4205
    Im always looking into investment property
    Aug 21 0

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