Hi everyone, I am brand new to this group. The information here seems very good. I am new to real estate investing. I am taking a course right now that concentrates on buying houses under $100k in the Philly area. We buy $.40- .60 on the dollar. Then rehab and either resell or rent out. Then refinance to pull money out within a few months. My question is what is the best way to get financing to buy these types of houses? They went over different hard money lenders but I’m still confused. They said the best would be to get a home equity line of credit, but the problem is I don’t own a home. Any help would be greatly appreciated! Thanks, Mike
everyone, I am brand new to this group. The information here seems very good. I am new to real estate investing. I am taking a course right now that concentrates on buying houses under $100k in the Philly area. We buy $.40- .60 on the dollar.
This is a good start I am just conserned that it is harder for you to get financing from a bank if you are under 50K some lender it is 70k.
I know this because this is a frequent trap for many investors especially when you want to do a CO refi and you have only owned the home days to a few months and you want CO on a property that is appraised for 25k.
I think that is why most people are telling you to get a HELOC because mortgage brokers and lenders do not like to do loans under50k one of the reasoen is it pushes your loan into what is called a high cost loan or section 32 lending and most lenders if not all do not do them.
I have one lender that will do a loan to 25k and that is only one lender.
Then rehab and either resell or rent out. Then refinance to pull money out within a few months.
You can do this the only issue is that it cost you double closing costs one to purchase the loan and the second for closing cost for the refi loan
If you can get a bank loan with cash out at closing on a purchase that would be the best choice and save you on closing costs thats for sure
My question is what is the best way to get financing to buy these types of houses?
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Stay above 50-70k loans amounts that will assure that you will get bank financing whether you are purcasing or refi.
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Work to structure the deal that you get cash out when you purchase. so that you do not have to refi do this only when you have to.
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Be approved for loans in advanced this is as good as cash and you can close fast.
They went over different hard money lenders but I’m still confused. They said the best would be to get a home equity line of credit, but the problem is I don’t own a home.
You do not have to have a home to invest it is just quick and easy to have a HELOC I do not recommend it because you are putting your personal property at risk.
If you have any more questions ask away
What specifc questions re: HMLs do you have?
My question for HELOC is- I have to own a home to get one right? I am just trying to find out other ways to get financing for my deals.
No I don’t own a home or have any investment property yet. I do have an LLC setup for purchasing properties though. Can I get a business line of credit because I have an LLC? Would that be a smart thing to do? Is that the best option? Thanks, Mike
well as long as it is an established business and has a credit history by all mean go get one
Wachovia bank and WAMU both have great programs
It isn’t really an established business because I just opened it. Do I have to have it open for a certain period of time before I go to the bank? How do I present what I want to do to the bank? Should I just tell them I want to get into RE investing and I want a business line of credit?
A bank isn’t going to lend to a new LLC unless someone personally guarantees the loan themselves. It will loan in the name of the LLC. After you have established the LLC’s track record you can get it rated by Dunn and Bradstreet. When you have a track record (credit history) and a D&B rating, the lenders will make loans directly to the LLC but like any other loan, they will be looking for income, debt and security as with any other loan.
Hi Dave, if the bank won’t loan to the LLC until I have a track record, then what is the best way to get the money? Will the bank not deal with me at all? What about through a broker or is there a better way for my first deal?
I’m not a creative financing guy so you will have to wait for responses from other members. I can loan money to individuals. The loans can be in the name of their LLC or even corportion but it will have to be personally guaranteed by an individual.
Lending seems to be a big mystery to most people but it is really just common sense. If you were lending the money yourself, how much risk would you take? The higher the risk, the higher the interest rate charged to compensate for the risk. Lending to an LLC that anyone can establish for $20 would be way to risky for a banker.
Hard money lenders evaluate risk themselves and want a big piece of the pie to compensate themselves for the risk. Making many small bets as opposed to one large bet spreads their risk the same way a financial planner will tell you to diversify your portolio. You may lose out on one or two but hit a home run on the 3rd that covers your loses on the first 2.
Look for an Angel among the people who know you and trust your judgement (friends and family) to get your first project off the ground. Make sure you reward them well and soon you will have a ton of private investors wanting to give you their money. Friends and family are usually more forgiving about the debts, don’t due any underwriting and will usually give you a market interest rate because they know nothing about risk/reward returns and don’t want to gouge you.
Many a fortune has been made this way. Hilton Hotels used to give out Conrad Hiltons autobiography free in the rooms. Its a great book if you can find it. Would you believe he went to Texas to start a bank in the oil rush days. He couldn’t find a hotel because they were all overbooked by people who came to Texas to find their fortunes in oil. The owner of one hotel sold out for song because he wanted to be a wildcatter. The rest is history.
Also look out, most lenders will require at least 6 months seasoning before you can use the new appraised value (after fix-up). Otherwise, you are stuck with sales price and can only take cash out based on that value.
Dynomac,
You are making this too hard.
What you first need to do is deal with a lender that understands investing and is creative you obviously have low scores and you are trying to find the money.
THE MONEY IS AROUND.
You can use HML if your scores are too low
You can Partner with someone, either a credit partner or a money partner to buy places
You can wholesale or bird dog some deals just to get money to start with and/or to cure your credit buy paying bills off.
You can find people to lend you money like PI that are like HML that are you friends, family and associates(people like to invest in RE)
You can also get seller financing options to get to the money and other creative deals
You can use seller paid grants that are available to get in to investment proberties
There are so many ways to get to the MONEY.
Just relax and buy houses.
I’m not trying to make it difficult, it’s just hard to understand all the terms and stuff in the beginning. My credit is actually not too bad I don’t think- it is 640- so I don’t know if I would qualify going to a bank with that score. But if I have an LLC than they wouldn’t check my personal credit would they? It is considered business credit then right?
So you are saying the best way to go is through a broker that can access HML?
640 is great of course you could go to a bank you could get 100% financing if you wanted,
I know you are not making things hard on purpose
I am just letting you know that you can go to a broker get approved and start investing and not worry about getting a HELOC now or a business line of credit now
Just start investing.
You can get a loan with a llc with hard money( may or may not check or credit) or a commercial deal and yes a commercial lender want to see your LLC credit history
and a commercial deal is not a guarntee becuase they also want an established LLc with credit history so your best bet now
Is to use bank money with a personal guarntee,(higher LTV)
HML with or without a personal guarntee (lower LTV)
commercial lender with or with out personal guarntee (lower LTV)
Ok, I will worry about the business credit later after I have an LLC setup. Can I still invest in prop if I don’t have an LLC? If not would it be in my personal name? I heard you weren’t suppossed to put things in your personal name in case something happens they can seize personal assets.
Is a bank loan the same as a hard money loan?
You said I would pay a lower LTV if I get a personal guarantee on the loan- what does that mean and would you recommend it?
An LLC is a Limited Liability Corporation. You do it so if you get sued for something regarding the property, the liability ends there. They can’t come after the rest of your assets.
You form the LLC and the LLC owns the property. You take a loan out in the name of the LLC but you guarantee it yourself. Even though you have limited your liability in a lawsuit, the bank doesn’t want to get left holding the bag in the event of a default. They come after you because you have guaranteed the loan. Your LLC has no assets other than the house for them to take but they know if you think they will ruin your credit and attach liens to your other assets, you will make your best efforts to pay the loan instead of letting it go to default.
Once your LLC has a track record (credit history) and some assets, you will be able to take more loans in the name of the LLC without guaranteeing the loans personally.
An LTV stands for Loan-to-value. With a 640 credit score, you can qualify for no money down financing. (100% LTV). if you go to a hard money lender, they will typically want you to make a down payment of 35% or more. The lenders whether it be a hard money lender or a bank or mortgage company wants some assurance you wont just walk out when the going gets tough. If you have made a down payment, you have some skin in the game and will try to sell the property without losing your down payment.
A lot of people think banks want to foreclose on property to get them cheap and resell them at a profit. Thats not correct. A bank makes money by lending money and getting it back with interest one month at a time. They are not in the real estate game. They are in the money game. All they really want is their money back with interest. They hate foreclosures and REO’s (Real Estate Owned). They usually lose money when it happens. I have been in foreclosures where people pulled all the copper wiring out of the walls and sold it to scrap dealers because they were pissed they lost their house.
There are many lenders who will do 100% financing for you with that credit score.