Here's where I stand

Hello all.

I am new to the RE field and absolutely love the wealth and quality of information from this forum.

I was approached by a friend, who has 10 years of contracting experience and is a licensed home inspector, about getting into the RE business. He knew I was always interested in what he does and real estate in general. He is a wiz at what he does, wanted to start a company long term, but didn’t have the “education” to reinforce his ambitions and erode any hesitancy. I just earned my MBA and frankly, soured on the corporate world. In short, I left the company I worked for(getting a nice package, don’t ask how that happened but I was able to take advantage of good timing). Since I left about month ago, we formed an LLC and have taken care of many of the other items, ie. CPA, lawyer, etc. I’ve been reading tons of material and researching when I can. Now it’s time to get funding.

We only have a few hundred dollars in a business checking account, just to avoid fees, but other than that, we haven’t invested any other capital to the LLC. We both have helocs at our disposal, but I keep seeing people referring to 100% loans. Opinions? Will the advantage of putting no money down for 100% loans be offset by higher rates? Am I overthinking and should I simply take advantage of our helocs to get say, an 80% ARV loan?

Thank you in advance for any help and suggestions.

Sounds to me that you two are in good standing, first tell me a little about what you are trying to do how big the project, what type of rehab, how much is your heloc for the both of you. Then I can help you with a plan that won’t fail, bullet proof safe the main thing we always want to use is opm that the only way.

Bruce Wayne

Without getting into too much detail, we were looking for single family homes in need of serious work. No tear downs or places needing foundation related work, but complete guts aren’t our of our realm. The size of the project or house doesn’t matter as much as the opportunity or obviously, the return on our time/work/money and the like. And our combined helocs are greater than $70k. But, like you said Bruce, OPM I have been taught, is always the way to go.

The 100% financing you are referring to is a 100% NOO loan from a mortgage company. These are harder to come by, but they are definitely a possibility if you have good credit and assets - usually cheaper than a HML (points, rate, etc). But can be more time consuming than a HML if you need the funds ASAP. If you have good credit, assetts, etc. expect rates on an 80/20 around 7 and 13 percent.

I would encourage you to AVOID taking equity out of your primary residence if you can possibly avoid it. “OPM” is the way to go and readily achievable if you both have mid-FICO scores of 640+.

Strategy of acquisition plays a critical role and coincidentally I have just been counselling a client of mine here in Charleston, SC on the very issue you brought up.

RE investors are either buying “price right” property for Rehab and post-rehab rental… or, they are buying to “Fix 'n Flip”.

Either way you should be focussing on a buy-price that when appraised on an AFTER REPAIRED VALUE basis will enable you to qualify for a short-term Purchase/Rehab loan from a PRIVATE LENDER
against a 70%-75% ARV.

In many cases that loan calculation should enable you to complete both the purchase AND the rehab work with little to no cash outlay at Closing.

Since these loans are short term (1 - 12 month term) their seemingly high cost ( 12% - 17% + 3-5 Origination Points) are more than justified when you consider that most private lenders can get you quickly qualified, the property appraiser-approved, and a Closing scheduled within 4-7 days.

That speed is essential when dealing with a time-sensitive situation involving a “distresesd” seller who may be facing the foreclosure “hammer” within just a few days. A conventional Lender’s 4-6 weeks prior to a Clear to Close simply won’t work in those circumstances.

I do an enormous volume of 90-day “Quick Flip” loans which is typically a sufficient length of time for my client to either complete the Rehab and sell the property or, get qualified for a permanent Non-Owner Occupied mortgage which then takes us out of the equation.

Along with my colleagues in FL, GA, SC and NC we secure most of our clients from mortgage brokers who are more than happy to refer their “Must Close Now” clients and from realtors.

Richard Cooper

Thank you all for your help. I guess timing is a major factor, and since I haven’t “picked” a property yet, I essentially have time to price out different lenders…especially for potential 80/20s.


Just wanted to clarify something about 80/20 loans. Those usually are indicative of conventional lending. With the properties you are looking at acquiring, conventional loans will most likely not be an option. Conventional loans require habitable average condition.

There are conventional rehab loans but as mentioned before these can be time consuming and may cost just as much as a hard money loan. (for amounts under $100K)

My clients prefer the hard money option since they can use this in any state thry wish to invest in.

You can do this with no money down. Contacting a mortgage consultant to build a relationship with should be a top priority.

Thanks for the clarification Ben. It is clear I still have much to learn.

I work primarily with R/E investors and builders. My opinion on this is that the biggest mistake investors make is not having an overall aquisition plan that encompasses the proper route for financing with the appropriate lending programs that will help to acheive the long term goals of the investors. The proper loans will make long term goals and timelines a reality. Not taking that into consideration slows down or stalls investors completely.