Good afternoon all.
I have a friend that has a 3 unit building that is worth $280,000 ARV. He is willing to sell it to me for $60,000, it needs $80,000 worth of work. The building is currently free and clear. My problem is that my credit has been hit hard because of the RE market. I am self employed and just now getting back on my feet. I have an end lender that will refinance me, but I don’t know how to finance the initial purchase and rehab. Any suggestions (besides wholesaling… that one I know).
Hi, this sounds like an awesome deal! Congrats!!
There are a couple of options that I see based on what you’ve written here.
First, a hard money loan for the purchase and rehab. Do you know how to find them? If not, let me know.
Second, if this a project in your home town, I’d suggest calling around to every LOCAL community or commercial bank (I don’t mean BofA or Wells Fargo or big banks). Give them a description of the deal and ask whether they offer rehab loans. They may be even more interested in helping you finance the deal if you’ll consider re-financing with THEM. Next, you’ll want to ask them what they’re looking for in a borrower. If your credit has taken too much of a hit, you can look for a credit partner. Local banks tends to be far more flexible than larger banks. They don’t have the advertising budgets the larger banks have and in general, have to work harder for business.
Third, ask the seller to hold the financing on the building (perhaps you can offer to pay a little more for the property). Have the payment due in a balloon when you re-finance. You can also partner with a contractor to do the work in exchange for either partial ownership, or a higher payment for the work done…all due upon the re-fi. This is actually an idea that just came up a week ago when I met with a contractor. One of my fellow investors were working on a deal with a very big rehab (similar to yours) and she asked the contractor if he’d be interested in partnering, by him doing the rehab and paying the expenses out of pocket. He was very interested.
Those are a few ideas. If any need clarification, let me know.
Good luck and awesome job digging up a great deal!!
Who is doing the refi, a bank or mortgage broker? Have you closed a loan with them before? How much of your situation do they understand. You mentioned just getting back on your feet. Does that mean your income was low? Is a stated loan going to be needed?
If you partner with a contractor be shure to have in the contract a completion date. If the date and budget are not met write it so he starts loseing money. Regular time and contractor time are way different