Financing Rehabs

I am in the begining processes of starting a partnership in rehabing homes. We are both very handy with experience in cabnitry, ceramic tile, carpentry with solid working knowledge of plumbing and electrical. The problem is neither of us have ever started a business or have ventured into REI.

My question is on the financing aspect. We have aprox 65-70k working capital. Most areas we are looking to start at have REOs ranging from 60-120k. While it is possible to pay cash for a lower end home and finance all repairs and cost through low interest CC’s, it would be nice to get into the middle to upper end (relatively speaking) homes that may offer more returns.

To cut to the point is it better to look for a HML and pay exhorberant fees and interest so that you can afford more home, or to pay cash and cut your expences? Is it true that with HML you may be looking at 12-18% interest with up to 8 points? Or is that a high end figure?

Howdy Baloo:

I pay 4 points and 14% with a minimum of 4 months. They also loan me only 70% of the after repair value.

Good to know. Did you go through a Broker to locate these lenders or are there other more Savy means of locating such investors?


Howdy Baloo:

It is a company, basically a loan broker that only does hard money loans. They had an ad in the local newspaper.

goto your credit union. I know my credit union will do investor loans for 10-20% down. With that much money to work with, you will have no problem getting a loan as long as your credit is good.

Thats some good information, thank you!

My next question is that oif I do find a HML, how do I address the issue of getting a pre aproval letter? From what I understand, many wont consider an offer with out one, but the HML is more interested in teh property rather then my credit worthiness and income.

Also, I have formed an LLC. How difficult will it be to attempt financing under a new business? The whole purpose of forming an LLC is to protect our personal assets. Will I be asked to co-sign on such a loan? Doesnt that defeat the whole purpose?

Howdy Baloo:

You will have to personally guarantee the loans even with a LLC and even with a HML. I get pre-approval letters all the time from HML lenders and you are correct in that most sellers especially banks want these letters submitted with an offer.

You will still have asset protection from other creditors but not the lender that loans you the money. Perhaps after many deals and some great credit in the LLC name you may be able to have lenders waive the personal guarantee.

why r u guys all doing these hard money loans, when you can get 100% financing on investment properties with a regular lender? Also you can do the rehab loans for n/o/o up to 80%ARV and not so many pts. charged

Hello Everyone, Investors use HML because their credit is questionable. Traditional lenders will only deal with people with good credit. HML bases their funding on the project, not the credit. Of course, you pay higher rates and points.

Right now I am looking to educate myself on the pros and cons of varrious financing options available.

I am considering HML for two reasons. 1st it seems that such loans are much more expedient, I have seen standard loans with banks get held up for weeks if not longer for various reasons. 2nd, while have sufficient capital to get started on a number of investments, my debt to income ratio is horrible. My credit score is bruised but salvageable. I am working on improving that as we speak. (some people just dont realize how easy that can be)

I am in MI in the Detroit Metro area. It seems there are a lot of opprotunities still in this area with out an over saturation of investors. This site is great for me as I build my knowledge base and pick your brains.

IMHO there is nothing that Carlton Sheets sells you (if you actually paid for it instead of borrowing from someo unfortunate soul like I did) that you cant learn here in a much more personalize format. You just have to look for it, and if you dont like looking for things then this is probably the wrong venture to persue.

Thanks again!

Hello Baloo, It sounds like you have made your decision.

If only I had…

The only two things I know for certain is that 1) I want to give REI my best effort. 2) I don’t know squat!

Everything right now is just theory until I put into practice. Until that time the best thing I can do is keep asking questions and soaking it all in.

I wont know til I ask. And even then I wont know until I am sure I understand.

Thanks for the extremely helpful post though!

Hello Baloo, It’s always good to do your research. At least you know that their are people here to help you. Good luck.

Zachj Are there lenders that would do 100% on an investment property?
I was told that any lender will want at least 10% down


yes with a certain fico.

also with hard money you can go to 80%arv

There are several sub prime lenders that will do no seasoning and also have 100% N/O/O loans