ADVISE ON FINANCING MY FIRST RENTAL PROPERTY

Rehabbing, Fix and Flip, Rental Properties
1

I been wholesaling for 1.5 years now and done that very well . However; in between deals I have free time to invest and I am looking at purchasing my first rental property with the amount of REO’s in the market. I’m thinking of somethink basic like a 1-3 unit in a low income neighborhood which are selling here from 25-50k, meaning REOs.

My plan is to used hard money to purchase a discounted REO . Then I would hire someone to rehab it as I don’t have no experience in rehabbing what so ever. Eventhoug I have some cash to spend , I would hope the HML would also finance the rehab. After is rehabed , I would hire a property manager to manage the property for me. At that point , I would go to a bank and refinance to pay of the hard money.

My concern is that I heard some stories about how this “cash out refinance” works or doesn’t work very well these days with banks changing their rules every week. I’m scared being that this is my first investment outside of wholesaling so I need to do my due diligence. I feel like maybe I should just keep wholesaling and wait for a very profitable multi unit property where the cash flow would be very high. It also scares me not knowing the rehab business that much but we have to jump in the water at some point, right?

Would like to know what you guys would do here. Thanks a bunch.

2

you will be trying to refinance the hard money loan into conventional, that is not a ‘cash out’, it may require 3 months seasoning with some lenders, but nothing like a cash out

3

If you wait until you’re on title for 6 mths, many community banks (or savings banks, S&L’s, CU’s) will do a cash out refinance using a new appraisal, which should be considerably higher than purchase due to your rehab, and the fact that it’s no longer viewed as a distressed REO property (forced sale) by the appraiser. You’ll have to hold the hard money loan a little longer that way, but since you’ve already sunk the up-front points into the HML, it’s probably worth it.

4

i agree ^… if you wait 6mo /12mo you should be able to refi with a credit union with a 640 score no problem.

5

Hard Money Loans are best used with short-term investments due to the high borrowing costs. If your intent is to hold onto the property long-term the best option would be to save up additional cash and seek conventional loans for the property. Additionally the best place to obtain rehab funding is with government grants. Search you looking housing development website to identify grant opportunities that will help fund the rehab.