Life As A Landlord – Down Payment And Closing

 

This is part of an ongoing series about how I became the owner of a rental property in Florida while living in Utah, and all the adventures I have had along the way. If you’re just joining me now, you can check out the first installments here:

Last week I got into the story about how I became a second time homeowner and landlord of a house in Florida. Today I’ll detail the third portion of the story where I actually deal with the banks and get my loan funded.

Well, I made it through most of the approval process. My account madness got all straightened out and the bank was willing to loan me the money for a second home meant as a rental property. One minor problem was that I didn’t have any money for a down payment.

Down Payment Assistance

No problem! As part of this deal, the investment company would happily spot me the money needed for a down payment through their down payment assistance program. That helps insure that they sell all their houses and that everyone will qualify for a loan.

Here’s how the down payment assistance program worked, as well as I understood it.

The home that the investment company had picked out for me cost them about $50,000 because it was a foreclosure and was purchased in a bulk package with a bunch of other houses from the bank. The current value of the house was closer to $150,000.

The investment company would give me the 20% needed for a down payment, I would apply for the loan from the bank, get approved and everything would square up. The down payment given to me would be sent to the lender, and I would get a loan for the remainder of the home padded a bit so I wouldn’t owe any closing costs.

While it may seem stupid that the investment company would just give me the $30,000 when they could simply make me come up with it instead, time is money and they had more than just my home to get off their hands. The quicker the process went through, the better for them. They could take the profit from the home (if you did the math, that profit is nearly $70,000 dollars minus fees and incentives) and buy another bunch of houses from the bank, starting the process all over again with another bunch of investors.

So that’s exactly what happened. As soon as the process started to move forward, I had to sign a bunch of papers with the investment company saying I wouldn’t move the $30,000 out of the account it was put in, and I wouldn’t steal it and flee the country. Then they wired exactly $34,000 into my savings account. Yea, nuts. I had never seen that much money before in my life and only wish I had told them to wire it into my other savings account that at the time had a %2.5 interest rate.

This wasn’t the investment companies first rodeo and they knew exactly how to work the process, get it pushed through as fast as possible and make sure everything closed smoothly. Even so, that $34,000 sat in my account for almost two months while everything processed.

Finally the day came. I was FedEx the closing documents, got them all signed, and sent them back to the bank. I wired the $36,000 to the lender…yep, the $34,000 was just an estimate and the total 20% down payment that I needed to send the lender was more than I was sent. I had to fork over the remaining $2,000 unless I wanted to throw a wrench in the gears and start the whole process over with. Closing documents are only good for one day and I had to get everything closed and shipped back to the lender so there was no time to argue about that money.

After docs were shipped received, that was it! I now owned my first real investment, a rental property in Florida, complete with tenant and lawn gnome!

Now to tie up all the loose ends….

Image by billaday

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7 People have left comments on this post



» GarryNo Gravatar said: { Mar 28, 2011 - 08:03:12 }

Wow, sounds great that you have a property for yourself 🙂 Congratulations ! Perhaps I should also think this way…

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» Paula @ AffordAnything.orgNo Gravatar said: { Mar 28, 2011 - 01:03:25 }

What a fascinating story! I also own a rental property but my experience was totally different (I didn’t go through a company that bought the house; I did it myself and bought a property across the street from where I currently live). I’m really interested in seeing where your story goes from here ….

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Jesse MichelsenNo Gravatar Reply:

Thanks! There are a couple houses on my block for sale that I’ve considered buying, I mean, if I had a bunch of money lying around 🙂

It would make management a lot easier.

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» optionsdudeNo Gravatar said: { Apr 6, 2011 - 08:04:11 }

I’m reading your story and started at the beginning, but I am a little confused. Are you saying that $36,000 is only 20% down. If that is the case, does that make your purchase price $180,000 on a house valued at $150,000? Not sure that I understand.

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Jesse MichelsenNo Gravatar Reply:

Hey dude, I rounded some of the figures here, for simplicity. The actual value of the home was closer to 155,000 and the down payment requested by the bank closer to %22.

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optionsdudeNo Gravatar Reply:

Well, that makes more sense. I am one who really gets into the numbers and was why I questioned it.

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Jesse MichelsenNo Gravatar Reply:

Hey no worries, I am not a numbers guy and like to keep things in simple round numbers 🙂



 
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