Hello all,
Another newb here, about ready to plunge into my first deal!
It’s a FSBO 2-unit building, 2BR and 3BR. It’s in need of some work to get the rent I’d want, and I’d like to use as little of my own money as possible, of course.
How can I finance the purchase to include the extra money that I’ll need for the rehab? I was reading about 203(k)'s and how they have an escrow account for the fixing-up money, but it seems that they’re not for investment property.
Thanks much! Great forums!
Assuming that you have good credit and income, you could just go to the bank and ask for it. I have done a bunch of these deals. Use a small local bank and buy the property at a BIG discount. The bank will loan you about 70% LTV with the banks appraiser deciding the value. If you buy the property below 70% LTV, you can get cash for the difference and use that for the rehab or anything else. Obviously, you should not be borrowing more than you need. You’ll be paying that back with interest.
Good Luck,
Mike
Thanks for the post, Mike.
I have a good income for my area and my credit is great. Hopefully, my search for “suitable financing” will work out well. I’d just rather not pay out too much of my own money on this first deal.
If only a potential lender could base the loan amount on what the property will be worth AFTER I’ve made the improvements. I’ll be purchasing at a discount, but not sure how much. I do know that I’ll be adding a lot of value to the property with the rehab that I’m planning.
Just remember that the operating rentals is ALL ABOUT THE NUMBERS. If you don’t have cashflow, you don’t have anything!
Good Luck,
Mike
I’ve made some calls to mortgage brokers. They’re not exactly tripping over themselves to lend out money on a 2-unit investment property that will be rehabed by a do-it-yourselfer. At least not with down payment amounts and interest rates that I’m happy with. It’s manageable, I’m just not happy with what I’m hearing so far.
I’ve considered just taking out a Home Equity Line of Credit. Much more flexible, lower interest, funds will be available as needed for future projects. BUT, how would that affect my tax planning?
Thanks.
When you finance at 70% is that one loan or a piggy back?
Do you go to a local bank?
Yes, one loan at a local bank.
Mike
The FHA203k loan isn’t known by a lot of lenders, so you should ask around for a lender who specializes in that product. If they have no idea what you’re talking about, forget it. Yes, it’s a non-investor loan, but some investors may choose to use it on a property they would like to live in.
The loan itself is sort of a pain. It takes a while to do and they control the draws, but FHA can get you better rates for homes you want to live in. http://www.hud.gov/offices/hsg/sfh/203k/203kabou.cfm
The do-it-yourselfer part can be a part of the problem. When I do my rehabs I use an appraiser that appraises the house and assures us that the purchase price plus the proposed fix up is for 70% to 90% of the final value. I have an escrow account (through a CPA firm) hold the fix up cash and issue draws as the work is completed and inspected. Then the appraiser (the same one that did the original appraisal does a final inspection to assure the house is now worth what he appraised it for or I can’t get my money. The involvement of the CPA goes a long way to put the lender’s mind at ease.
PM me. I have a guy that will do 100% rehab loans all day long and has a strong background as well as being a REI loan specialists.