What is the best way to fund/finance a short term project whether it is a flip, fixer, or building a home?
And why is that the best way?
thanks,
JS
Money.
Just kidding. It really depends on the length and scope of the project. Could you be more descriptive?
Bob L.
I like the idea of using a HELOC loan. Helps eliminate closing cost on the project and if you refinance or sell the project you pay the line of credit off and it is available for the next one.
Beggy
Thanks for the response.
Length would be 1month - 1year.
How about 1yrs-2yrs?
Beggy,
I like the HELOC idea.
So you prefer HELOC over hard money, short term loans, regular loans, putting up your own money, contractor loans, credit cards, etc?
thanks,
joseph
This is a good topic…
HELOC, CC’s, Hard Money Lenders and even some small community banks that do Rehab loans seem to be favorite picks from people that I have spoke with.
Don’t forget credit cards. The strategy here is to get cash advances on several cards with high credit limits. Sounds crazy but people do it. Probably about the fastest way to get $20,000 or $30,000 or even more.
OK - I admit I never fave done it but it is an option. I use a local S & L.
Well, we have to consider the cost of borrowing with each one.
When I am talking borrowing money, I am in the $100000-$300000 range.
Let me take a stab at it.
CC: cost of borrowing is high interest rate each month.
Hard money: 12-15%+ points+ prepayment penalties.
HELOC: interest rate of prime+1% to 1.5%
Short term loans:???
Contractor loans:???
regular loans: points, loan fees, and closing costs.
Did I miss any? The above are all estimates of course. Anyone know what the cost of borrowing on short term and contractor loans?
Joseph
Short-term/contractor loans are typically similar to HMLs from what I hear. CCs are actually better than HMLs due to the lack of points, inspection fees, & lower closing costs, but a HELOC is definitely best.
For an intermediate-term (>6 months), what’s best is to use a CC/HELOC for rehab, then refi with a mortgage broker to clear the lines for other investments.
I still have to go with the HELOC. The one that beats it is using your own cash. I know there are people who use their own money to buy and rehab. When the project is done they either sell or finance with a conventional lender and get their original capital back. To me, finance charges, loan fees, appraisal charges and lender hassles are things to eliminate. They are just ways of other people making money off of your hard work and slow the process down. Having a HELOC or cash reserve allows you to close quickly and to get in and out of the project faster. Faster turn arounds = more opportunities.
Beggy
I’m with beggyone on this one, as long as your HELOC is large enough to cover your needs and the person using the line of credit uses it responsibly.
Of course, you have to already be a homeowner to get one, not everyone is that fortunate.
I only have one investment property, which I inherited when my mother passed away. Just so I’m clear, if I have cash in hand (check, whatever) to pay for a house, then the only closing costs are the recordation taxes and whatnot?
dude, keep your cash. get a mortgage and use someone else’s money. this frees up your money to do other projects, down payment on more properties, repairs, trips to Italy…that kind of stuff. it’s called “leverage”. cash is just too valuable to use up like that.
What I’ve considered doing once I have a good hunk of change saved up for investing (~$25k) is to get a HML for the purchase cost ONLY, then use personal funds and cred for renovation costs.
Why would you use an HML for purchase cost? They’re for short term projects and people with bad credit. If your credit is good, just get a regular interest only loan with no prepay and use your personal funds and credit cards.
Oh, the other thing with using credit cards for the short term is that some of them offer nice low teaser rates for 6-9 months so those rates beat a HELOC.
Community Commerce Bank in California: they will lend 70% of final appraised value… (usually enough 100% financing and rehab cost)
Not Cheap , but is usually s/t $>