I’ve come across what I think is a great deal and I need a experienced Rehabber’s advice. If someone would be wiling to chat and offer me some insight I would be grateful. This is my first rehab and I have some knowledge just needed some experienced advice. Thanks.
On request providing more info, I am have come across a deal from a wholesaler I met on BP. I think it’s a pretty good deal but I don’t know for a fact and have some questions. This is a 3/2.5, the asking price is 132.5 and its AVR(apprised 3 weeks ago) is 200k. I haven’t visited the home but looking at the pictures and talking to the seller it seems to need around 10-15k worth of rehabbing. Now, I took 70% of AVR minus my repair costs and figured out 132.5k is a good price. I pull some comps and found that the recent sales reflect the 200k AVR and comp homes within a 2 mile radius were selling for 195-210k.
Now, I don’t have financing, after speaking with a few people I learned that PML is better over HML. They are cheaper and easier, so I started looking, of course all these sites ask you to pay hundreds of dollars to get PML lists and I don’t want to do that. I figured out after looking at some HML interest rates if I had to go that route the money would cost me around 10k for 6 months, that’s how long I am estimating it’ll take to rehab and sell. So if in fact I could get a down payment together my costs would break down like this.
Loan: 132k( purchase price plus rehabb costs, I need this 100% financed)
Cost of Money: 10k for 6 months
Closing Costs: 5k
Down Payment: 14k
Potential Profit 30-45k
My questions are;
What am I on interns of my calculations?
Where can I find a PML that will lend 65% of AVR plus loan costs?
Is there anyone these day who does 100% fully financed loans, meaning down payment, purchase price, closing costs and rehabb costs?
How much does personal credit and income really count?
Is this a good deal?
Overall your thoughts on this?
Thank You Kndly!!
A PML is going to lend 65%-80% of the purchase price, not appraised value, since the purchase price is lower. That doesn’t include closing costs.
What you could do is sign a separate agreement with the vendor to secure a VTB second on one of your other properties for the difference. But, the moment a PML finds out you are getting 105% financing of the purchase price, they’re gonna run away from your deal as it’s too risky. Remember, since the 2008 housing crisis, most, if not all, PMLs have been burned by investors that went under because they ran out of money. They’re gonna be very cautious regardless of appraised values.
Your best bet is to convince the vendor to lend you all or some of it. There’s some creative financing techniques online depending on the vendor’s motivation. If the vendor wants all cash, it’s not gonna happen unless you’ve got cash (which it looks like you don’t).
Thanks for the advice, I really would like to get into rehabbing and I can come up with a 15k down payment and possibly closing costs. What would be the best deal for me to look for?
Each lender usually has different loan terms / requirements. I would visit http://www.reiclub.com/hard-money-lenders.php (or consult with your local real estate investing club) and see if there are any hard money lenders in your area OR state. And I would call them all and/or visit their websites, and discuss what their terms are for borrowing money.
I will advise you on one thing first - if you have “0” experience with rehabbing homes…before you call anyone…I would stop what you are doing, go to Amazon.com and buy " FLIP: How to Find, Fix, and Sell Houses for Profit" by Rick Villani & Clay Davis. That book will give you an introduction to what it takes to find deals, how to evaluate them and how to rehab a house. If you read it - and preferably memorize it - that will make you sound a lot more intelligent when you are talking with a potential hard money lender. The worst thing you can do is burn a bridge with a potential lender by coming across to him/her as a total newbie, who is just looking to get rich quick in the real estate business. But if you know your stuff already, just disregard this whole second paragraph. =)
the biggest problem I see with your numers is this:
Potential Profit 30-45k”
You are not assuming ANY sales costs. I typically spend 11-13% on sales cost… meaning:
closing help (3-5%) everyone is asking for closing help these days
transfer taxes (1-2%) depending on your jurisdiction
lender payoff cost?
Regarding a HML, there are many HML in my area offering 100% financing. You come to the table with closing costs and points, typically 5-7% in Maryland, and using our lenders fees.