I already have the money for repairs in a HELOC. It’s been listed since August, and my offer would be no more than $100,000.
In your example, what does the $23,000 “defeciency amount” consist of? Is that closing costs, points, and such? Would they allow me to roll the defeciency amount into the loan itself?
Thanks for the additional information WealtRX and Rvestor. To Wealth RX and Rvestor, from the information that you both have provided, it seems possible to complete a major rehab on a junker in the time frame of 2 months. I previously had the idea that a major rehab must take at least the time period of three to four months to complete. The two month time frame is great in order to reduce holding costs on the Hard money loan. I will try to find contractors that can complete major rehabs in a two month time frame. Thanks for the information.
Actually those calculations that wealthrx gave were close but not in the correct order for the majority of lenders . The funding would actually be done like this; if the lender was requiring points/cost/payments paid upfront. (some lenders may allow for everything to be paid at payoff, but not many)
200k - ARV (appraised value after repairs)
140k - 70% of ARV (your new loan amt.)
subtract
$8,640 = 6pts
$6,533 = 4 months of int. at 14%
$2,500 = ~loan fees
subtract
$X fix up (use $30k as in previous scenario)…(this figure has to be worked into the loan…all of it…any hard money lender that does the loan off the arv must make sure that the full amount for fixing up is completely escrowed)
leaves $92,327 towards purchase price of
133k - Purchase price (listed amt)
so the deficciancy is $40,673 towards the sales price…not towards the money needed for rehab…that has to set aside…no matter what.
The reason why this deficciancy is coming out higher is because the costs are all deducted out upfront. Most hard money lenders will not take it off the back. At most you could probably add back in the 4 months of intersest payments because not every lender will allow for monthly payments to be escrowed in. But that still leaves you with quite a difficiency towards the sales price.
You would either need to
a. Find a lender that allows a higher arv % (some go up to 85% depending on what area you are located in)
b. have the seller hold a 2nd mortgage note covering the balance. It’s just for a short period. This may not work if you’re seller needs all of the funds now or if you’re buying from a bank.
I do agree with Wealthrx that you need to keep your ltv lower. There’s probably better deals out there for you.
Some contractors lead you to believe you that it takes-several weeks to do this and several weeks to do that-when that
really is not the case. They are S_T_R_E_T_C_H_I_N_G out the time frame in order to fit other projects in along with yours!
Not having a full crew devoted to Your project and missing a couple days here and there.
You can maximize your time & $$$ by utilizing the “assembly line” method of construction, using different specialists for each
phase of the project. In my experience this helps to insure that the right people are in place and working in their primary
field of expertise, without getting side tracked & overextending themselves on Your project. Playing to your contractor’s
strengths will keep the project on time and on budget and eliminates alot of guess work.
Depending on the property type and the extent of repairs-each individual project should take me 4 days or less to complete
if materials are on site. (I try stay clear of items that may be special orders and take longer to come in) Obviously things do
not always go as planned but if you are conscientious of the 4 day rule then you will always be ahead of the game.
15 project phases + 4 days per project = 60 day time frame.
Thank you for the information WealthRX, the system that you are suggesting appears to be very time effective.
Are you advocating that an investor should hire subcontractors for each phase of the project making the investor the general contractor?
Is it possible to apply the “assembly line” method of construction if you hire a general contractor to oversee the work?
Would you suggest offering the contractors financial incentives to ensure that the rehab is completed within the 2 month time frame? If yes, how much.
Are hard money lenders hesitant to relase the rehab funds from the escrow account if the investor chooses to hire subcontractors and does not choose to hire a general contractor manage the projects?
When you make the reference to individual project, you are referrig to the specific system of the house that needs rehabbing. Examples are HVAC system 4 days, plumbing and septic system 4 days, Electrical Sytstem, Completing Gutting of Interior 4 days.
Thanks for the feedback
WealthInvestigator-
I am simply stating what system works for me, results will vary based on a number of different factors.
The HML’s I deal with Do allow You to be your own GC to hire subs. You will need to obtain a builders risk
insurance policy and meet a couple other criteria, but as the owner you can be the GC as well.
The individual projects refer to the phases of repair. Plumbing, Hvac, Roofing, Windows, Demo, Drywall,
etc. Many of these phases can be completed silmultaneously, along side each other. (Roofing & Demo
can be done together etc.)
In hiring a GC you will be at their mercy in terms of how the individual work phases flow.
I’ve tried the system using a GC but was unsuccesful, you may have better results than me.
I prefer to know my subs personally and play to their strengths. In other words don’t hire a
plumber to do roofing & don’t hire an electrician to hang drywall. Sounds simple enough but
I come across many contractors that try to convince me that “they can do it all”.
I personally do not give other financial incentives to the subs, they are paid very well for a couple
of days of work and I can always keep them busy throughout the year. I have however purchased
used work vans, trucks, outerwear, boots, sports tickets, tools ,etc. as an added incentive to keep
them happy but limited financial incentives. It seems to work because not everybody is money motivated.
Welthrx you said the hard money lender you used is in Illinois only…
I live in Illinois can you give me there info please.
Thanks
Antoinette
The hml I use is very fast. Takes comps and tells me in minutes if they will give me the loan.
They charge me 3 points
give me 90% of the purchase price and 80% of the fix up cost. They close very fast.
DWJ
So they only give you 90% of the purchase price? So you have to come to the closing with 13%? 3 in points and 10% down?
There are plenty of great lenders that handle Illinois. I can help you with a few if you contact me.
I am in new york