Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Mortgage after Cash Purchase of Rental Property
Old 07-05-2016, 10:27 AM   #1
Thinks s/he gets paid by the post
 
Join Date: Aug 2004
Location: Laurel, MD
Posts: 2,951
Mortgage after Cash Purchase of Rental Property

I am looking for some help/input from the real estate investors and landlords. I am considering purchasing rental property primarily as a means to diversify my retirement income sources. It seem that some of the really attractive opportunities might be more accessible with a cash offer. By accessible, I mean ability to offer a quick closing with less risk of problems. In the long run I would much rather carry a mortgage than pay cash.

What are the pros and cons of obtaining a mortgage for a rental property after paying cash for the property? Would a mortgage company even consider making a loan immediately after making the purchase?

Thanks
__________________

__________________
...with no reasonable expectation for ER, I'm just here auditing the AP class.Retired 8/1/15.
jazz4cash is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 07-05-2016, 10:52 AM   #2
Thinks s/he gets paid by the post
ExFlyBoy5's Avatar
 
Join Date: May 2013
Posts: 1,977
Quote:
Originally Posted by jazz4cash View Post
I am looking for some help/input from the real estate investors and landlords. I am considering purchasing rental property primarily as a means to diversify my retirement income sources. It seem that some of the really attractive opportunities might be more accessible with a cash offer. By accessible, I mean ability to offer a quick closing with less risk of problems. In the long run I would much rather carry a mortgage than pay cash.

What are the pros and cons of obtaining a mortgage for a rental property after paying cash for the property? Would a mortgage company even consider making a loan immediately after making the purchase?

Thanks
You could, but you will most likely pay a higher rate if it's not your primary residence. Also, if you are using it as rental property, some lenders are not a fan of making loans with no history of rental payment. Also, most lenders will not give you more than an 80% LTV on a rental property. Of course, this isn't ALL lenders, but a large # of them...particularly the ones with good rates.

And not to question your decision to do this...but are you SURE you want to buy a rental property NOW? I know timing the market is a fool's game, but IMHO, there are some significant signs that we are approaching a R/E bubble. Of course, this can be very regional in nature but nonetheless...I would make this decision with an abundance of caution.
__________________

__________________
Founder and Head Lounger @ The Life of Leisure Institute
Retired in 2014 at the Ripe Age of 40.
ExFlyBoy5 is offline   Reply With Quote
Old 07-05-2016, 11:11 AM   #3
Thinks s/he gets paid by the post
 
Join Date: Aug 2004
Location: Laurel, MD
Posts: 2,951
Quote:
Originally Posted by ExFlyBoy5 View Post
You could, but you will most likely pay a higher rate if it's not your primary residence. Also, if you are using it as rental property, some lenders are not a fan of making loans with no history of rental payment. Also, most lenders will not give you more than an 80% LTV on a rental property. Of course, this isn't ALL lenders, but a large # of them...particularly the ones with good rates.

And not to question your decision to do this...but are you SURE you want to buy a rental property NOW? I know timing the market is a fool's game, but IMHO, there are some significant signs that we are approaching a R/E bubble. Of course, this can be very regional in nature but nonetheless...I would make this decision with an abundance of caution.
Thanks for the feedback. The lenders I have contacted all require 20% downpayment to purchase rental property anyway and some do charge a bit more in interest. I would not consider pretending that this purchase is for principal residence (which is common, I believe). As for the RE bubble concerns, I believe we are actually in a "sweet spot" in my area as prices are starting to rise and rates are still low so there is a diminishing level of value right now, but I believe I am aware of the risk. I'm not sure about rent history, but I think my loan application might be enhanced if I had a lease.
__________________
...with no reasonable expectation for ER, I'm just here auditing the AP class.Retired 8/1/15.
jazz4cash is offline   Reply With Quote
Old 07-05-2016, 11:14 AM   #4
Thinks s/he gets paid by the post
ExFlyBoy5's Avatar
 
Join Date: May 2013
Posts: 1,977
Quote:
Originally Posted by jazz4cash View Post
Thanks for the feedback. The lenders I have contacted all require 20% downpayment to purchase rental property anyway and some do charge a bit more in interest. I would not consider pretending that this purchase is for principal residence (which is common, I believe). As for the RE bubble concerns, I believe we are actually in a "sweet spot" in my area as prices are starting to rise and rates are still low so there is a diminishing level of value right now, but I believe I am aware of the risk. I'm not sure about rent history, but I think my loan application might be enhanced if I had a lease.
Something else you might consider; if you own your primary residence out right, a HELOC could work for this situation. I know PenFed has them available for about 3.75% (adjustable rate) and you *could* keep the payment pretty darn low for the first 15 years (interest only payment). This isn't something that *I* personally would do, but it's an idea for financing a rental property.
__________________
Founder and Head Lounger @ The Life of Leisure Institute
Retired in 2014 at the Ripe Age of 40.
ExFlyBoy5 is offline   Reply With Quote
Old 07-05-2016, 01:07 PM   #5
Thinks s/he gets paid by the post
Senator's Avatar
 
Join Date: Feb 2014
Location: Eagan, MN
Posts: 3,061
A cash offer will definitely be best. I was submitting an offer for a friend (I have a RE License) on a 4-plex.

Our offer was $460K, they accepted a $477K cash offer.

Cash is no appraisal, no mortgage qualifications, faster and cheaper closing. Much less risk for the seller.

Use a HELOC, that is the best source of cash. I use my HELOC on a regular basis, if I have to. It is paid off either immediately, so within six months, so far.
__________________
FIRE no later than 7/5/2016 at 56 (done), securing '16 401K match (done), getting '15 401K match (done), LTI Bonus (done), Perf bonus (done), maxing out 401K (done), picking up 1,000 hours to get another year of pension (done), July 1st benefits (vacation day, healthcare) (done), July 4th holiday. 0 days left. (done) OFFICIALLY RETIRED 7/5/2016!!
Senator is offline   Reply With Quote
Old 07-05-2016, 02:10 PM   #6
Thinks s/he gets paid by the post
euro's Avatar
 
Join Date: Oct 2015
Posts: 1,099
Explore the "delayed financing exemption" options with your lender (or mortgage broker). This allows you to do exactly what you intend. Buy cash, and then get mortgage (you have to complete the transaction within 6 months). No seasoning requirements or rental income stipulations. If you made significant improvements, you can include the value-add int he mortgage, up to 100% of the original purchase price (plus closing costs).

The Senator is right - cash is king in today's market
__________________
euro is offline   Reply With Quote
Old 07-05-2016, 03:33 PM   #7
Moderator Emeritus
laurence's Avatar
 
Join Date: Feb 2005
Location: San Diego
Posts: 5,234
The terms were much better on our rental when we put 25% down vs. 20% and we had to prove we could cover the mortgage with no rental income. I agree with those who are hesitant now, our property has increased in value by nearly a third (345k purchase comps selling 460k) in just three years. Meanwhile if you really market it you can get $2600-$2800/month, tops. This is north county San Diego, FWIW.
__________________
laurence is offline   Reply With Quote
Old 07-05-2016, 07:18 PM   #8
Thinks s/he gets paid by the post
Senator's Avatar
 
Join Date: Feb 2014
Location: Eagan, MN
Posts: 3,061
Quote:
Originally Posted by laurence View Post
The terms were much better on our rental when we put 25% down vs. 20% and we had to prove we could cover the mortgage with no rental income. I agree with those who are hesitant now, our property has increased in value by nearly a third (345k purchase comps selling 460k) in just three years. Meanwhile if you really market it you can get $2600-$2800/month, tops. This is north county San Diego, FWIW.
My last mortgage, because I would have had five, required 30% down, a 740+ credit score, and enough money in the bank to cover at least six months worth of mortgages. I now only have three mortgages and significantly more cash flow.
__________________
FIRE no later than 7/5/2016 at 56 (done), securing '16 401K match (done), getting '15 401K match (done), LTI Bonus (done), Perf bonus (done), maxing out 401K (done), picking up 1,000 hours to get another year of pension (done), July 1st benefits (vacation day, healthcare) (done), July 4th holiday. 0 days left. (done) OFFICIALLY RETIRED 7/5/2016!!
Senator is offline   Reply With Quote
Old 07-06-2016, 10:28 AM   #9
Moderator Emeritus
laurence's Avatar
 
Join Date: Feb 2005
Location: San Diego
Posts: 5,234
One rental is enough for me! Phew!
__________________
laurence is offline   Reply With Quote
Old 07-06-2016, 11:52 AM   #10
Thinks s/he gets paid by the post
 
Join Date: Aug 2004
Location: Laurel, MD
Posts: 2,951
Quote:
Originally Posted by euro View Post
Explore the "delayed financing exemption" options with your lender (or mortgage broker). This allows you to do exactly what you intend. Buy cash, and then get mortgage (you have to complete the transaction within 6 months). No seasoning requirements or rental income stipulations. If you made significant improvements, you can include the value-add int he mortgage, up to 100% of the original purchase price (plus closing costs).

The Senator is right - cash is king in today's market
Thanks, Euro. This is exactly what I was looking for. I didn't have a clue about this delayed financing option. I did find several links but it seems to be fairly obscure (which I think is an advantage for me somehow). I think I want/need the leverage of a mortgage but using cash to complete the purchase has many advantages as many have noted.
__________________

__________________
...with no reasonable expectation for ER, I'm just here auditing the AP class.Retired 8/1/15.
jazz4cash is offline   Reply With Quote
Reply

Tags
mortgage, rental property


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Rental Property: Monthly Cash Flow vs. Principal Pay Down Downtown FIRE and Money 10 11-04-2015 08:34 PM
Financing rental property and using property management services GreenER FIRE and Money 12 01-12-2015 09:00 PM
I'm paying off my rental property mortgage dd564 FIRE and Money 24 01-08-2015 10:14 AM
Rental Property: Buy for cash flow, or for appreciation? bearkeley FIRE and Money 8 04-20-2006 03:23 PM

 

 
All times are GMT -6. The time now is 08:48 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.