This guy made a loan to my brother in law last year and I thought he did a great job.
I approached him at the end of April and said I want to purchase some investment properties with my brother in law. We got pre qualified and started to look.
We put EM on 4 houses and the first one is suppose to close on the 26th, the bank would be willing to delay until the 30th
Well this guy sent me a text message(said he was in a meeting) yesterday to tell me that he is sorry and cannot help me.
Here is what I have 20k cash, 600 score, self employed, tax returns show 15k in income
Brother in law have 10k, 660 score and works for me.
The houses are and closing dates
June 30, 40k. ARV 100k, 5k in repairs. townhome
july 3, 55k right next door to the first, arv100k, no repairs, brick front. townhome
July 16, 82k arv 150k, nice area, 9k in repairs, SFH
august sometime, 68k built in 06, houses started at 140k, ARV now 120k. No repairs
I thought i paid a good price for them, but one investor told me that the first house does not have enough equity for him. They rent at 950 and my “piti” was $480 per month
Conventional financing for these properties will either… 1. Put you in the poor house because you with a 600 scores you will most likely not be approved for maximum financing and have to put down loads of money. 2. Not even be achievable because as a family business both you and your brother-in-law will have to provide all your income information and hope that you qualify.
What I would suggest is that you speak with a local bank about financing these properties, and if that does not work go to a HML. From your OP it sounds as if you have some solid deals, but you will definitely need to utilize creative financing to make all of these deals work.
Hard money seems to be my only option right now.
If I get a HML would I be able to refinance down the road?
I don’t want to get a HML and after 6 or 12 months be told that I can;t refi
In today’s market no one can tell you if qualifying will be possible in 6-12 months. Guidelines are still changing constantly. If your exit is to refi and your not sure about refinancing I’d wholesale or rehab homes you’re certain can be sold. Conventional won’t happen so you need to speak to HML. Will send a PM with additional questions.
Many banks have ditched the stated income for now unless you are providing 20% down. Conventional loans require in the mid 600 range for your credit score. FHA has a cap of 271k and will be lowered to 200k next year.
Use hard money to purchase. Your brother in law needs to get to 680 score to go stated–even then he is looking at 70% max and guidelines are really tight. Pay cash for one of the properties and get someone on owner finance with decent credit that can refinance and pay you off in a few months.
First, I would like to know how much better that other investor is doing.
Wow. 50% LTV isn’t enough? With a cash flow of $450 a month?
It seems to me that if you’ll end up owning houses at 50-60% LTV or less AFTER you do the repairs, you’re in business. And if they’re cash flowing $450 a month to boot you’re even more golden.
Not sure you’ll do as well on appreciation on townhomes but who cares. Even if you can add $300 a month profit for each of the 4 properties, thats a pretty good day’s work if you ask me.
One thing I noticed. It doesn’t appear you have the cash to buy all 4. Even with good credit, expect to put down 15-20% plus you have to come up with the repair costs out of pocket as well. Based on 20% and the numbers you gave for the 4 properties, you’d need:
tw1 - 13k
tw2 - 11k
hse3 - 24k
hse4 - 14k
Total: 62k And that doesn’t even include closing costs (2k each or more).
But you and your brother in law only have 30k between you. Not going to work.
Some suggestions:
Wholesale the bigger house. Thats the property that you’d be the most out of pocket and should have some equity to work with for another investor. Shoot for 5k.
To lessen the blow on closing costs, offer to take a higher rate and have the bank pay them (or a large portion of them). You’re only going to have the loan for 6 months anyway (see next suggestion).
Refinance in 6 months. After 6 months, you can do cash out refi up to 75 or 80% depending on the bank. You could even pull your investment money plus an extra 5 or 10k per house and still cash flow great.
This one may be the make or break factor.
Get a Credit partner. I don’t think those credit scores will work, especially with the reported income numbers you have. Banks have clamped down on the numbers so much, there just isn’t the leeway any more. I think they can fudge on one or the other but not both. Good income, low score, maybe. Good score, low income, maybe.
Any chance you have a relative or friend that might be willing to let you use their credit to qualify? You’ll have to give em apiece of the deal but so what. Do an LLC just for the three houses and have 'em kick in a little bit of money (7,500) and use their credit to get the loan.
Maybe it works out that each of you get one house (and the equity, appreciation, tax deductions and net profit). So you and your brother in law end up with 2 and they get the 3rd.
Last Option. Get the hardmoneyloan to buy all the properties. Some HML will float you for a year. That should be just long enough for you to qualify for a commercial loan and throw these things in there.
I’m not as familiar with commercial loans on sfh’s but if they look at the numbers only like they do for apt complexes, you might not need a great credit score providing you get renters in the places fast and show the cash flow those things are making.
If you HML all 4 and were making $400 a month on each one, you’d have to look pretty solid. One thing though, you’d want to show the ability to save that cash flow so be sure to save at least half your profit each month.
Look like some great deals. Now you just gotta get creative with financing - same boat I think most people are in right now.
