Hello all. I am new hrere, but have been “Lurking” for a while.
I must say, judging by the posts I read, that real estate investors are among the most intelligent and well rounded people on any forums. I DO like to read the non-rei posts as well. They are very enlightening. But enough of the well deserved accolades.
I have excellent credit (820+), have a small mortgage on my primary residence in SC (50K out of 140K), but alas…I work for myself. Therefore, I show little, I mean LITTLE, income.
I have $90K to invest. Most of my investments so far have been in my primary residences, ie. pre forclosure, distressed seller, and auction on the steps of the house. I buy low, remodel myself, and up the equity big time!
Now, my question: I want to do a quick flip (buy, rehab, sell for profit). But I am also interested in buying/renting/holding.
If I do the latter, I would spend most of my cash on about two properties. How do you get the money to buy the rentals. I thought about paying cash and re’fing, or even getting a loan to buy, but the lenders are nervous on any NOO loans/refi’s. I did set up an LLC, but it is new and has no established business credit.
Hey there. If you showed income on your tax returns, the answer would be different. I don’t show much income on my tax returns so this is what I (and all of my self-employed rehab & hold clients) do:
Go to a local portfolio lender (small bank or credit union) and tell them that you will need “takeout” financing for your rehabs. They’ll give you a letter that will spell out what they will offer you.
Acquire/rehab your props using cash OR private money raised from local lenders or friends/family.
Chances are good that the portfolio lender will want you to have a tenant with a lease for a min of a year in place before they will do the takeout or refi loan.
Also, you can speak with the portfolio lender about a “construction to perm loan.” This means that (once they get comfortable with you) they will loan the purchase, repair funds AND do the takeout loan.
Thanx for your reply. Though it does seem daunting to tie up my cash reserves for an entire year. I was hoping for a quicker solution…but I understand the economy and the newer lending restrictions we now have.
Thanx again for your reply.
dservice - I am a new investor closing on my first investment property next week. I had the same question you have. My plan was to be able to purchase properties and rehab using my own cash reserves and then do a cash-out refinance to get all my money out (purchase price, rehab, first closing costs, second closing costs, and holding costs for the rehab period). That way I figured I would be able to do it as many time as I wanted because after each deal I would take all my money out and would be able to use it again for the next deal.
Another caveat - I want the properties and mortgages in my LLC name, not mine. This alone limited my choices of lenders to a few that keep the notes in house.
I talked with few mortgage brokers and lenders. To do cash out refinance I will need 6 months seasoning. But even then they would not allow a new appraisal. They would use either the original appraisal (when I bought the property), the purchase price, or the new appraisal, whichever was less. To do a cash out with a new appraisal (the only way I could get all my money out) I would need to wait 12 months.
I then found out that I can do rate & term refinancing without any seasoning requirements. So the approach I chose was to use a private lender that is willing to finance 75% of the property + rehab costs and then do a rate & term refi after I close. This way I will end up using only a little of my money. I figure that I can do 4 deals this way and by the time I am ready to do the 5th deal, it will already be 12 months from my first and then I can refi that first property to get all my money out.
This is the problem I am also having as well. Lenders are wanting the properties to be seasoned before they loan you money. I am running into this issue for HELOCS as well.
In my scenario, I’d rather wait a 12 months and get a loan as a percentage of the appraised value (instead of the purchace price). Does this make sense? It hurts to sit back and watch right now.
I’ve also exceeded the freddie/fannie limit - so my only option is portfolio lenders or HELOCS.