Hello, hope you are having a good Saturday - sure is nice outside here in TX. Anyhow, I’m wanting to get into rehabbing but I’m real stuck on financing at this point.
All I can use is a HML - but I’d like to know how much I need to save up for before I speak to a HML, and so I know I can afford to make monthly payments and payments to the contractor.
let me use this example:
ARV = $70k
Purchase = $30k
repairs = $15k
So, I would have to finance at $45k with the $15k in escrow, and say the HML is 16%, I would then take $45k * .16 = $7,200 , then divide by 12 for the monthly payments of $600? is this correct? I’d like to have 3 months of payments saved up and enough $ to get the contracter to start repairs. Do contracters generally wait till after the HML inspects the house for the repair drawal or do the contracters require that money up front? Any help would be greatful!
Also, if the HML holds the repairs in escrow, and I complete alot of the work myself, how do they determine how much out of the escrow to pay me for the repairs that I will do? I know a contractor will have a receipt, but I will not. I’d love to work on the house as much as possible…
What happens if I cannot sell the house within the 6 month time frame and I’m unable to finance it? Does the HML reposses the house or…? Thanks!
One problem you may face is that some of the larger HML’s will not finance that small amount. At an ARV of $70K some will finance $49K which is OK. You did figure the interest payments correctly. If you get a good enough deal you can get 4 to 5 monthly payments financed as well as the up front points if any. Some HML’s will set a higher rate with no points and some will do like 14% and 5 points.
Each contractor is different. A have a roofer that will do the job and then send me a bill and I have one that can not even get o the job without some gas money and my paying for and getting the materials delivered. Usually the electrician, plumber, HVAC guys will wait a day or two to get paid after completing the job.
You my include payment to yourself as well. I usually turn in an estimate for the total job item by item and then get a draw after the work is complete no matter who performs the work. Once your HML gets to know you they may even give you advances on work to be done. I have been doing this but it is hard to get caught up with the work if you do not spend the money on the job.
You can get into trouble really fast if the house does not sell. I like rehabbing rental units and once they are finished you can rent them and then sell or just refinance and pull out some cash and keep them if they will cash flow. Yet another idea is to get them fixed and rented and then sell to a partner for almost retail and keep 50% ownership by their getting a mortgage with little or no cash out of pocket. I like several exit strategies.
My lender will only let me get 30 days behind before he sends me certified letters and will have the foreclosure sale posted by the 40th day so they can sell the next 1st Tue. It happens quick. I did have one wait almost 6 months on a condo that I could not sell. I hated it but they took it back. At least they sold it for what I owed. I was glad they did OK. I lost about $5K. No more condos for me especially in that project.
Thanks for the reply! One of the best I’ve yet to get!! I’m wanting to start rehabbing/flipping, but then I would like to switch my coarse to rehabbing and then renting the property - much like you had stated. I just don’t know how many properties a bank will let me own. Don’t know how they determine how many you can buy, especially if they are for investment purposes (rented out).
The only other thing I can think of if a property doesn’t sell is to get a mortgage for it myself. And if that doesn’t work, I’m pretty muchly sunk. Any other exit strategies that you could suggest if the house doesn’t sell?
Would you list the property with an Agent after you finish rehabbing it? (granted its your first rehab?) I live in San Antonio, so hopefully when I do find one, I’ll be able to sell it quickly after I rehab it. Thanks again for your reply. God bless!
I am looking at some commercial deals in San Antonio possibly even tomorrow. I am facing the exact same problem with a house that I rehabbed that has not sold. I do not want it as a rental so we keep lowering the price and adding sales incentives. No luck so far. We thought we had another live one buy he jumped the hook or something. Nothing wrong at all with keeping a few and selling a few. You may want to start with the cheaper ones as they rent easier and cash flow better. I have not looked at houses there in SA for a while but I believe there is still a good supply of foreclosures etc in the lower end price range.
I can not think of any other exits. Even a lease purchase will not work as they have been all but banned and with a 1 year balloon on the loan this would not help much anyway.
I just found this site tonight and joined so I could ask. You say lease purchase have been all but banned :o? I’m new to RE investing but have heard a lot about lease purchase and was trying to learn more.
I believe Texas and Colorado were the first with the new laws. All kind of posts here about the Texas laws that went partly into effect 9/1/05. If you have a mortgage you can not lease purchase a property if pretty much what I get out of it. Basically you can just owner finance with the buyer getting a deed and you getting a note and deed of trust.
Reason behind the new laws always helps explain the WHY: Many tenant/buyers getting shafted on purposes even or not by seller/landlord. Buyer would put up a few grand and make payments for months only to have the sheriff or constable come evict them because the seller/landlord disappeared with the loot.
I’m a realtor in San Antonio. I don’t mind working with investors on listing their homes each time they rehab. I want to invest in San Antonio but i dont have the start up capital. Working with investors for a small fee I to can some day get into investing. I can place it on the market before you guys finish rehabbing it. The faster you get it on the market the sooner you can sell it. You already knw I have access to the MLS. If you give me your particulars on where you want to market I can find properties in that area for you.