Let’s say I am using a HML to close the deal at 65%.
100,000.00ARV
25,000.00 Repair and holding costs
25,000.00 to cash to the seller and I offer a note to place them in second position with a 15,000.00 loan to start payments in 6 months
40,000.00 total for the house
Main question: Could I have a total loan of 40,000.00? 25,000.00 to pay the seller, 15,000.00 to place money in my pocket for now (I’m using it for capitol and other investing as the other investments will pay way much more), and still have 25,000.00 for any repairs to be made?
Hard money lenders typically do not allow you to put cash in your pocket on a deal even if it is at less than 65% LTV. They usually lend the purchase price plus repairs up to 65% or whatever their terms are. They usually require you to do the repairs first in phases and then they reimburse you in phases.
I agree w/ B-view, getting a HML to give You cash back is not likely to happen.
They Will allow you in most cases to come to the table with little to no $$$ down.
HML’s want to be protected in case you decide to walk away from the deal and
want some kind of incentive for you to complete the project and pay them off.
If they give You cash at closing then they feel that you are less motivated to
follow thru w/ project completion & payoff in a timely manner.
This is the reason for the low ltv loan, they need equity to protect against your
potential default.
With my HML I didn’t get any cash back, but I did get money put into an escrow account. I had to use my own money and then fax in a draw request. Each week the lender would come out and check to see that I did the work and then on Friday they would deposit the amount in my account.
See about getting some private money. How about this…Put an ad in your local paper that reads -
“Note for sale - $65k 1st mtg paying 8% secured by nice $100k home. Call xxxxxxxx”
You can pick your own interest rate and amount. When people call, you tell them what you are looking to do. $40k for the house, $25k for repairs. You are creating the note based on the agreed upon terms. Cash out the seller completely and just have the new private money in 1st position all alone at 65% LTV.
Or, you could also do $65k private money 1st (65% LTV) as above and give the seller a second for $15k too. You’d be at 80% LTV but if the seller is okay with it and the property supports it, go for it. You have the house, money for repairs and $15k in your pocket.
Wow! Some good input here Brookview. I like those creative ideas. It’s funny that I had someone right next to me that buys notes and I didn’t even think of that.
Thank all of you who responded. I was just curious if it was possible.
Brooview Question:
What if I did that last scenario and did the following to receive cash back when I sell the house, would this work?
Not that I would get cash back at closing with a hard money lender, but I would make it to where I would start making payments to the seller on the second note 6 months after buying the house. So that when I sell the house, I get cash between the 65% LTV and the asking price, and $15000.00 loan with no credit or bank hassle. Therefore, the seller has now given me a loan with no credit or cash down and giving my xxx amount of years to pay it off.
I walk away with 35% + 15000.00 financed. Remember, the question is, is it possible?
Lee, I’d like to start by saying that just about anything is possible. The questions is whether or not its a good idea.
I’m not sure I understand your question but it seems like you are asking if you can sell the property for $100k, payoff the 65% private loan, pocket the remaining $35k and not payoff the seller’s $15k note? If so, that is not a good idea at all. He has no security. What is his recourse if you do not pay? Nothing? Don’t do it.
Now, your saying, " not pay the seller back". Whoa buddy :o!! Sorry, if it sounded it that way, but NOOOO!! By all means, I do not mean it that way! I would definetly pay the seller back at closing when I sell the house. I was just wondering if it’s possible to pay the seller back in payments. However, I am understanding if this were done, the seller then wouldn’t have anything to fall back on, so don’t do it. Sorry, I’m a little slow, but hey I am undestanding the, “BIG” picture now. Thanks! I won’t do it!
That brings another question now that you said that. I could have the seller owner finance a portion in second position until the house sells correct? I guess as long as the paperwork permits.
Yes, you can have the seller wait for their money until you are able to sell the property. You don’t even have to make payments during that time if the seller agrees to it. Justs make the terms of the note due upon resale of the property.
