Financing options

General Real Estate Investing
1

Hello all.

I am in need of some advice. Some of this has been mentioned in a previous post, but I will elaborate more. My plan is to buy, rehab and sell homes. Holding them no longer than 6 months if possible.

A local bank has recently approved me for up to $80,000 for buying investment properties. This is considered a business loan and not the typical mortgage loan. So the terms are shorter (max of 20 year amortization) and the rates are a bit higher. (Quoted 7.6% with no loan origination fee.) Supposedly the closing costs for this type of loan are less than a normal mortgage loan. So even though the rates are higher, I should save money by going with this type of loan since the closing costs are less. Now for my problem. On this type of loan, they require a minimum of 10% down. So for 80k, that’s $8,000. I don’t have 8 grand in cash, but I do have an ELOC that currently has about 33k available. I suppose I could put the 8k on the equity line and then use credit cards for the remodel. I’ll use an 80K property with 10k in needed repairs as an example. Closing costs should be minimal.

72k @ 7.6% for 20 years = $584.44
8k on equity line = $120.00 (actual cost will be $292.50 for total ELOC balance)
10k (credit card) = $200.00
Other holding costs = $150.00 (per month estimate)
TOTAL = 1,054.44 per month carrying costs.

I realize I could put the down payment and rehab costs on the ELOC, but I am just leery of loading everything on it. Plus, I figure I can get a zero or low rate on the CC.

If I’m close on my estimates, then I am looking at over $1000.00 a month for carrying costs. This seems like a heck of a lot for an 80k property. Granted, if everything goes well on the rehab, and I sell in a timely fashion, then the holding costs don’t matter that much. But if rehab costs soar, and I end up holding for a year, I’m going to be hurting.

So is this acceptable or should I try to find alternate financing solutions. Please critique.

Thanks for your time.
Bill M.

2

See Bill now you are thinking. If you can get 0% cards why not!!! I do!

3

Bill,

Too bad you couldn’t put the entire purchase on the ELOC. Alternatively, what you’ve proposed works. I’m curious, as you push the pencil around, what were you using as the ARV (after repair value)?

You might also consider, as a back up plan, advertising for rent to buy. Often, when I list a property I also put a rent to buy sign in the yard. I take whatever comes first.

Have you lined up some people who can rehab the property?

Sounds like you’re ready.

-H

4

Thanks for the quick reply guys.

I do not have a particular property lined up yet. I was just using 80K as an example since that’s how much I have been approved for. So I have not figured any ARV into the equation.

I have considered the “rent to own” option as part of my exit strategy and would likely use it if necessary. I am not looking to become a landlord. But then again, I don’t want to be paying a 2nd mortgage either. lol

By nature I am conservative, so I think my biggest concern is getting this 2nd house and running up my ELOC and then not being able to get rid of the house. I need to get over my fears, find a deal, and pull the trigger.

Thanks again.