I am looking into buying an REO property that needs rehab. What kind of loan can I apply for that will cover the cost of the home and the rehab? My LLC is less than two months old, does that matter? Are there other funding options besides HML?
I thank you in advance for comments
Yes, your LLC being so new will mean you will likely have to personally guarantee the loan in the LLC’s name. Do you have any track record of buying/rehabbing property before having the LLC? If so, you may be able to get a local bank to help you out with the purchase and rehab costs. Otherwise you may want to look into private lending. Buying a home at a large discount and having accurate repair estimates will help.
If you have no track record, expect to have a hard time getting a loan to cover the rehab too. If you can pay for the rehab, maybe you can use a loan for purchase and then re-fi later to get your money out of the property after you’ve rehabbed it.
I don’t think this is the right time. Any how this is my opinion.Take better suggestions from the experts.
here are a few thoughts:
First, I would contact a bank, credit union, or mortgage broker. See if you can get pre-approved for an amount equal to roughly 70% of purchase price plus repairs. This is your “end loan.” You will do this as an individual and NOT your LLC. This is a pre approval for a specific amount so no property info will be involved. The property address will be TBD. You are only attempting to get a solid credit pre approval.
Next, go shopping for a reputable hard money lender. Do this as an individual and not LLC. Your decision should put most weight in total fees and the percentage of the after repair value they will lend. The interest rate is irrelevant. Be careful, sometimes this amount can exceed the amount of your pre-approved end loan. Don’t take more than your end loan. Repair it like a rental and not a flip.
Once home is fixed up, you can refinance to pay off the HML with your pre approved end loan. Since most, if not all, lenders will only lend a percentage of sales price plus repairs, keep ALL repair invoices and reciepts and take as many “before” and “after” photos as you can. If you’ve owned the property less than a year, there will be seasoning issues and the value will come into question.
Any time I use a HML it is critical that I purchase the property at a greatly discounted price.
After closing, don’t forget to raise both arms and jump up and down a few times.
Why not get the financing through an LLC? Either way he’s got a to put a PG on the loan, and if he titles it and finances through his LLC then he’s pushed into the commercial arena where he doesn’t have to worry about his personal finances as much (since the underwriting is more about the property than the borrower) PLUS he doesn’t have to worry about Fannie/Freddie property limits. I personally enjoy working with commercial LO MUCH more than residential officers as the regular residential offers usually don’t know a thing about REI, whereas the commercial guys do. Just how I see it.
You make a very good point, however, not a very practical one. Here’s what I mean. The majority of “newbies” are not equiped financially nor do they have a proven track record that is needed to obtain commercial money. Further, since terms on most commercial notes are not as favorable as those on residential conforming notes, taking advantage of the easier money would be prudent. You CAN NOT finance, as an LLC, a residential investment with a conforming loan. I would also take issue with your point about the importance of your personal finances and obtaining commercial money. As of July 8th 2009, I can assure you equity based commercial lenders have pushed the line to a more credit/equity based decisioning model. I am currently in the process of putting a commercial note on 7 properties. You wouldn’t believe what they wanted. I did 5 properties about a year ago and it was way easier. As we speak, many commercial lenders have absolutely no desire to loan new money for property investment. I firmly believe FNMA first then on to commercial money. By the way, it’s easy to quit claim the deed to an LLC upon future refinance with commercial lender.
You may be referring to your area of the country only, but there are plenty of small banks that will do a commercial loan on a residential property in the name of an LLC (with a PG of course) here in Texas. I know of two right of the bat.
So have I, (got commercial loans on residential investments props), which is why I brought it up in the first place. Just another good example of the hyperlocal nature of the RE markets…
Perhaps you two should read my reply more closely. To repeat what I said, you can not finance a 1-4 unit home with conforming money as an LLC. This is not regional or local. It is a conforming loan guideline. Of course, most people recognize conforming to mean a loan that conforms to Fannie/Freddie guides. I’m also sensing that commercial lenders are moving away from financing rentals. I had a commercial veep tell me today that they’re terrified of holding potentialy declining assets. He continued to tell me that financing flips on a short term (60-90 day float) is preferred.
Don’t know about you guys, but I’m refocusing on flipping again.
So, If I use an FHA loan, I can buy, rehab the property and put it back on the market within 60-90 days?
If the property will not be your primary residence, you can not use FHA. If it is your primary residence, it may qualify for FHA’s sweet 203B renovation loan. Will you be living in the home for the next 12 months?
I was not thinking of living there
Then cross FHA off your list of financing options as they’re only for owner-occupied properties.