I think I found the property that could start my REI career! I have talked to a HML broker. It is a bank foreclosure and here is some info on it:
asking price - $69,950.00
ARV - $115,000.00
HML will fund 70% of ARV - $80,500.00
6 points - $4830.00
4 mo. payments -$4500.00 (approx)
Misc -$1800.00
Total: $69370.00
This is already putting my available funds at less than the purchase price. I will never get the points fee or the 4 mo. payments or the misc back.
I still have to pay for the approx. $5000.00 for repair costs, insurance, misc. holding costs (utilities, etc) and realtor fees if I list with a realtor in the end to sell this property.
I should still make $20,000.-$25,000. but I’m having a hard time with the idea that this project could cost me so many $$$$$!
My credit rating is good but I am self employed. If I can get a “conventional” loan with 10% down, no prepayment penalty and an interest rate of about 9% on a 2/28 ARM with no income verification, I would obviously be better off in the end with a bigger paycheck…I can scrape up $10,000. for a down payment if I have to & I’m thinking that I can get credit lines open with Home Depot for deferred payments on the repair costs. Am I on the right track here? Or am I breaking a cardinal rule of “do not use your own money”.
Why are you using a HML? With a good credit score you should be able to get 100% financing from any good mortgage broker. Then if your repair costs are only $5k you could come up with that money 100 different ways, signature loan, home deopt line of credit, whatever.
Did you think about buying it and then renting to own and not doing the repairs?
I agree with Guy. If your credit is good why go to a hard money lender? Even if your credit is not so good there are other ways to get the property and fix it up without giving away all that cash.
If you would like you can email me and I’d be happy to help.
There are stated self employed, investment property, 100% loans available. If you do not have enough for closing costs and or repairs. There are better hard money deals out there too. Get 80-85% ARV, no prepay, will hold for 9 months.
Thanks! I guess I had a lot more financing options than I realized…the loan process has changed a lot! I remember buying our first home & I felt like I had to cut my wrists with a butter knife & give my firstborn up just to get a mortgage!
Lydia
Okay so the after repair VALUE is (for this case) $115k
Alright, so this means it’s valued at 115k. Now does one refinance this at say 90% LTV, just to make some quick money and then put it on the market to cover the refi plus the rest of the equity (value) in the home?
or
Is this 115k going to be the asking price that is firm? And furthermore are you going to sit on it, hold the home until it sells? How fast do you think, it will sell at 115k? Do you think you’ll get 115k?
I just struggle with this ARV. I like the ARSP - After Repair Sale Price - hell add in AT CLOSING…so that would be ARSPAC. When the actual check crosses the table and ends up in my hands. Or the 1st position note crosses the table when it’s all said and done.
I’m actually looking at houses and trying to determine, now, what I will get for it, if I rehab and put it on the market in say…2 months from date of closing. This number is generally, ridiculously conservative because my ARV is MY ARSPAC.
Make sense?
I’m also not looking to flip homes. Seems like a shop and chop operation - when the property is sold, you pay taxes or roll it into another home or whatever, but the bottom line is, that property is gone forever, unless you buy it again, later on down the road, after it realizes appreciation and depreciation that you didn’t get to benefit from.
Actually, comps in this area are selling for $119,000.00. We went to 2 open houses last week one of the houses was definitely not pretty. Very outdated, needed a good cleaning and had awful fake brick looking shingle type siding. 1 full bath and 3 bedrooms. Nothing special. There was an accepted offer on it before the open house for $95,000.00 (asking price). If that house sold in less than a week at asking price (I would neer have offered $95,000 for it), this house will definitely go for $115,000.00. There were some comps that actually sold for more than the asking price.
If it does not move after 3 months, I will hold it for awhile. Now that I know I can get financing for it with much better terms, I don’t have a problem holding for a while if I have to. Average days on market is 60 days for this area.
Conventional financing is available for properties that are in at least average condition. With only $5K in minimal repairs this sounds ok. Couple things to consider.
The property will be vacant. Some lenders will not loan on vacant properties. Others will, but the vacancy may create a negative cash flow in which the lender could have a restrictions for high ltv financing.
Doing a stated income works great for those who can actually state what they make and qualify. The program is intended for a reduced documentation option, not for over inflating income to make the ratios work. Lenders also offer a no ratio loan in which income is not even listed on the application, therefore - no ratios calculated.
With lower loan amounts, financing on just 1 loan at 90% may be challenging, but possible. Usually those, along with 100% financing, are split up into first/second combos. Having a combo would slightly increase your costs but may give you better rates. So knowing how long you would keep the property would be important to structuring this.
You mentioned about scraping together the 10% down payment. In addition to that many lenders will want to see reserves equivalent to 6 months of the expected mortgage payment in a liquid account.
I think you’ll do just fine with any of the options availabe out there for you.
Question for the other brokers-
How do you deal with recapture policies on transactions in which you know a client is only going to retain a property for 2 or 3 months?
For those not familiar with recapture, this is a policy that a majority of lenders have with brokers that do business with them. Basically it states that the premium paid by the bank to the broker for signing a client up with them will be requested back if the loan is not on their books for 4-6 months. Not only can they ask for the premium back, but if they see a pattern developing they can cut a broker off from doing business with them. A broker will usually calculate that premium into what they are wanting to make for their services. So if the lender requested it back, all the broker would have made is the origination.
Do you charge a higher origination or hope that the lender does not care?
Just curious, I’ve heard several opinions from brokers in this local market and have mixed views on it myself.
Ben,
I am another broker and I always make sure I understand my investor’s goals prior to doing their loan. If it is a loan that I know will be paid off in a short period of time, I structure all my income on the front of the transaction so I don’t have to deal with recapture issues.
Better yet, I try to get my investors set up with lines of credit on primary homes to use that money over and over (if the equity is available).
I’ve read over several of your last posts and found your thoughts and practices similar to mine.
It wasn’t a surprise to hear your answer here either as it was in allignment with my perspective. All of my clients are informed on how a broker is paid and will choose my compensation on what they feel is best for the individual property.
I’m wondering how the majority of mortgage professionals handle this.
Helocs are a great tool for investors. It seems that so many have been told to use “other peoples money” though. In my opinion, if you have to borrow the money it might as well come from the least expensive source.
Ben,
Please take a minute to respond to my posted email address.
I would enjoy the opportunity to speak with you more about your business model, marketing, etc.
Thanks
