I have noticed that there are some good deals for small real estate investors in condominium units and two and three family buildings but is there a financing available for those kinds of purchases?

You are correct that there are some very interesting opportunities to get in on the ground floor in basically entry-level housing which can be obtained at a good price and then rented until the market turns around. The easiest place to obtain financing is your primary residence and so you could either refinance your first mortgage or take out an equity line on your house and then become a “cash” buyer in order to get in on those opportunities. However there is also a financing available from banks but, as you might imagine, the banks are fussy about the deals they want to make. They generally will require a 70% loan to value ratio, good credit by the borrower and a debt service coverage ratio of at least 1.25%. A debt service coverage ratio means that you take the monthly rent and you deduct all of the monthly operating costs including real estate taxes, utilities not paid by the tenant, water and sewer charges, insurance and the like and the amount left at the end of the month must be at least 25% more than the amount of the mortgage payment. That of course anticipates that you will have already rented the property. So perhaps the best way to do it is to become that “cash” buyer, fix up the property to the extent it needs it and then get it rented and then refinance with the bank and pay down your equity line with the proceeds.

If you have questions about this or any other real estate matter, please contact Tom Bennett at (617) 531-6574 or tvb@barronstad.com.