For the seasoned investor out there - what is the best way to go about financing an REO.

I am reviewing a property that I have a hold strategy of 180 days: Therefore, I would need reserves + purchase price - and there would be tons of equity at the offer price.

Reserves: 11k (PITI)
Rehab: 10K
Operating Costs: 5k (my $)
Selling Costs: 10k

All in all - if I offer 160k with a tax value of $203k & comps avg at $215k. How will banks structure a deal that will basically:

Give me 31k in reserves and 160k towards the sale - bringing the loan to 191k & appraised value (high 247k; low 204k)?

Is it best to buy & refinance to pull cash out at the same time to handle reserves?

Need some seasoned opinions/facts here … Thanks. :biggrin

Based upon your suggested purchase price (160K), rehab costs (10K) and ARV/FMV value of 215,000, you would need an ARV based loan that would allow for 80% (your scenario comes to 79% when you add both purchase price and rehab costs).

There is a conventional investor rehab loan program that allows 80 ARV; but you must have a mid FICO of 641 or higher, willingness to go FULL DOC or Bank Statements, manageable DTI, etc. to qualify.

Your ARV request exceeds the allowable limits of most hard money lenders (65-70 ARV is the norm; 75 ARV is available with inward investment), so this won’t be an option based upon the numbers you presented.


Scott Miller

The way I personally do it is to buy for 100% LTV with a conventional loan asking the seller to contribute closing costs.

Then I fund the repairs out of pocket and flip OR hold 6 months as a rental and cash out against the new appraised value to recoup my repair $$.

There are many ways to do it but I like this because it’s WAY cheaper than hard money.

With a 680 fico, financing up to 90% of completed value is available. Sent you a pm.

Most conventional loan programs will only allow for 2-4% cost to cure; I believe hard money is a valid approach when you have a cost to cure in excess of 6%.


Scott Miller