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  • ipso
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What is the best type of loan to use on investment property?

I want to buy a 3br 2bath SFH for $25K; I have $10K believe it needs 10K in repairs; will rent out for $800/mo what is the best loan to get; credit union has equity line with no closing cost if you keep loan for 3years.  Should I borrow from family pay cash and then get equity line? or get a mortgage for 60% LTV? on font end and pay all the closing cost?
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February 05 2012 - US
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Answers (6)

Thanks for clearing that up Bronch!

I have submitted a request to Zillow to remove part of my answer from the Q&A, so others don't get incorrect information.regarding my recommendation that a self-directed IRA could be used to loan money to family members without specifying "the lineal heritage".

It's important to understand that we all are trying to help, but we don't always have all the answers.
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September 22 2013
Regarding the IRA answer above, that is INCORRECT.  Your family cannot form an IRA and lend money to you because most of them are disqualified parties under IRC 4975.  The exceptions are siblings, aunts, uncles cousins, etc - those OUTSIDE the lineal heritage.
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September 21 2013
Get a regular mortgage if you are planning on keeping the property.  Depending on your numbers, you may be able to get a 15-year mortgage with a positive cash flow.
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May 22 2012
Your family can create a self-directed IRA by transferring funds from an existing IRA or 401(k). The self-directed IRA will make the loan to you to buy the property. The rate you pay will be earned tax-deferred or tax-free depending on whether the new IRA is formed as a traditional or Roth IRA.

You can then get the line of credit to pay off the loan from the IRA after you improve the property and increase the home's value. Then, your family's IRA can do it again for you.

shapiroamg is absolutely correct about not even investigating an option of getting a conventional loan for that amount of money. In fact, I doubt you could find a lender who would make that small of a loan anyway. And the condition of the home presently is probably not in a qualified state.

There are hard-money loans which you can get as well. Generally you will pay 4%-6% of the amount of the loan in points and the rate will range from 9.75% to 16% or more on an annual rate. You usually will need 5%-10% of the cost basis as your required investment and the lender will loan up to 60% of the improved value up front for purchase and improvements. You may get 100% of acquisition costs and improvments with some lenders with no down-payment and may have to pay all the improvement costs with some other lenders.

Good luck!
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February 26 2012
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For a loan that size, borrower the cash from the family.
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February 23 2012
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I'd suggest reaching out to one of the lenders in our directory to go over your specific scenario.
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February 23 2012
 
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