Construction loan ???
Private money ???
Hard money ???
Owner financing ???
Traditional mortgage ???
Stats: Seeking first investment property to rehab and sell
Credit score of self and spouse from 550-620
$60,000 line of credit
Need quick approval of funds before we seek properties
Primary area of investment will be in MD
The best way to go if you have a 60k line of credit is to use that to buy and rehab if the price allows it. Otherwise owner finance is always the best way to go. Then private money then hard money. Thats my opinion anyway. Good luck with the flipping. A lot more people get burned doing that than you will probably ever know. They only talk about the successes on TV. Just make sure you do your homework and buy it so IF you cant sell it for a profit you can rent it for one.
I use private money for all my deals even though I could use my own money to do them in most cases. Keep in mind, that if you can find a property that you may be able to fund, and rebab with your LOC, you want to be sure you have reserves to pay your LOC interest, and solve unexpected problems.
If you have $60k available, then you should have no problem finding someone to lend you private money to purchase your property. Most private lenders will give you 60-70% of the current appraised value. But there are some that will give you up to 60% of the after repaired value (full potential market value after repaired).
I typically pay anywhere between 12-13%, and 1-3 points depending on the property, and the LTV (loan to value). But you may pay a little more on your first loan with a new lender, and as you continue to do business, the price usually comes down.
Go to your local REIA meeting and you will find a boat load of people looking to place their money in loans. Getting the money is really easy when you have some to put into the deal. If you are still not having any luck, then you can try http://www.rehabfunding.com. They are rehab lenders that will work anywhere in the country. They are a little bit pricey… but the can certainly give you a solution your looking for.
Best,
John
First and foremost, you must make sure the property your purchasing has equity, not sweat equity where you create it, but existing equity. You would do this by accessing www.realquest.com (Go to your local first american title company for FREE access. Speak to the branch manager and tell them you will open escrows with him/her, and need access to this website, they will diresct you to their representatives and pay for it because they want you to open escrows with them). Then run the comps on your purchase property through realquest.com. I advise going to www.realtor.com and finding properties YOURSELF then type in the address in realquest .com and distinguish if you have equity. You can go through a realtor but they won’t give you all available listings. I advise www.REALTOR.com. THEN WHEN YOU FIND A PROPERTY WITH EQUITY, then go to your loan officer and get an interest only laon at 100% financing. Negative amorization loans require higher credit scores, making it more difficult to get even though the interest is better. But you want whats easiest. The Easiest loan is Interest only becuase you need a fair credit score to receive 100% financing. Let the bank finance the whole amount at 100%. You then call the Agent who is listing the property which is very important because by you going direct to the listing agent, you have a better chance of receiving the house for a lower price because the listing agent will make double commission by you going through him/her. I advise going direct to the listing agent. Please remember to only offer .005 of the purchase price for your earnest money deposit. Example is for every $100,000, you put $500.00 down. This earnest money deposit applies to your closing costs. YOU CAN GET YOUR DEPOSIT BACK at close of escrow because the bank allows up to 3% of the purchase price of the loan for closing costs. So you ask the listing agent to credit you 2.5% or $2,500 for every $100,000 of the purchase price and you have .5% which represents your deposit held in escrow. You must make sure that your escrow officer(where you open title) charges reasonably for fees and the loan officers bank charges reasonably for fees. Also the loan officer charges MUST ONLY BE ONE POINT in the front (through closing costs) and NO POINTS IN THE BACK(this increases your interest rate). By doing this all escrow charges will be 2.5% or below and your EARNEST MONEY DEPOSIT IS RETURNED TO YOU BECAUSE THE BANK ALLOWED UP TO 3%, but only 2.5% were used, so your deposit of .5 for closing costs which was your earnest money deposit is given back to you!! Rememeber to tell your loan officer that you do not want a prepayment penalty because you want to sell quickly. So you get a propery with equity, and are able to negociate better and receive a lower price for your property because your going through the listing agent direct, and you receive your deposit back at close of escrow, and you do 100 % financing through an interest only loan(easiest-remember not to include taxes and insurance in your loan), AND YOU GET A BARGAIN!! I made $1,590,000.00 Profit selling 2 homes this way. These were Million Dollar Homes to start with. so I had more flexibility selling.(Remember if you work with a million dollar home and find $500,000 equity, then you canSELL IT TO ANOTHER business partner and extract the equity 30 DAYS AFTER YOU initially close escrow. This would allow you to have money to make the mortgage payments and to put some in your pocket to go to Tahiti. Regards “Richard”.
I would agree with most of what Richard97 said if you are going to go with traditional financing. I personally dont like dealing with all the paperwork headaches that traditional lenders require, so I always prefer the private loans. But you will certainly save money by going the route Richard97 has suggested.
However, I would be VERY CAREFUL about buying a property then selling to a partner to finance the renovations. In some cases this is considered selling to a “straw buyer”, and looked at as mortgage fraud. There have been a lot of cases where investors have been playing this game because of the rapid appreciation increases (betting that they can ride the increase rates and cash out later), but now that the market has flattened a little, many banks are cracking down.
Here is an article from my local area about a group that was doing this and are all going to jail for it:
http://www.heraldtribune.com/apps/pbcs.dll/article?AID=/20061217/BUSINESS/612170574/-1/xml
If you are going to do this, be sure you are not crossing any lines that could get you into serious trouble.
Best,
John
hi
I’m a newbie too!
my question is how does the seller financing works?
is the seller going to give me money for the down payement or what? how does it works at 100% financing I’m willing to by and flip it later!
thank you!
Seller financing is when the seller of the property agrees to give you a mortgage for their equity.
If the property is free and clear of any bank liens, then your seller will give you a first mortgage in the amount that you are financing from them.
If there is a bank lien in the first position, then your seller will give you a second mortgage for the equity.
In either case, you will make the payments directly to the seller just like you would if you had a mortgage with a traditional lender.
In this case, because you are a new investor… just get an attorney to handle this for you. If your seller accepts your offer, then just hand all the details to a closing attorney to iron out the details of the mortgage to the seller, and do a title search to make sure there arent any other liens out there that can get you into a bind.
Hope this helps, Good luck!
John
If you do not know the rehab, fixing business. Find an rehab investor to “mentor” your project. Let them act as a project manager and go over your rehab numbers and let them meet with your contractor. That way the contractor knows that you have someone" looking", and you are not as “green” as you are. I lost a lot of money in rehabbing my first property - because I made some mistakes. Then I got the invetor friends to come and advise me. Line them up early and pay them for their time.
The Money is Free When You Buy a Property that has Existing Equity. Most of the time the real estate agent makes mistakes in valueing the property incorrectly, either they do not specialize in that area/city or they have outdated comparable sources and unvervalue property. So there is NO FORCED APPRECIATION, because the money in the property is ALREADY THERE. THIS IS NOT ILLEGAL. You just have to find these bargain deals. Example: I bought a Property in Saratoga, CA for 1,500.000 and I sold it to my partner for 2,600,000 the next month because the property had existing equity. I then Extracted 1,100,000 OF FREE MONEY in 1 month, and I resell the property immediately and either pocket the money or do a 1031 exchange. The reason I sell to my partner is because it is the easiest method to extract the equity LEGALLY. A refinance is questionable and must prove renovations for appreciation, and selling to my corporation, or llc business entity is questionable and sometimes difficult. Also selling to a relative with a last name could be viewed as a bailout. So the EASIEST METHOD is selling to a person that has a different last name. You could live there after close of escrow to avoid paying withholding federal tax and you can create a Charitable Remainder Trust and Quitclaim Deed the property over into that trust and sell to your partner to avoid LEGALLY deffering capital gains tax, and like I said you then resell the property immediately. I did not put any money into renovate the saratoga property nor will I pull money to renovate it because the money is there. you see, properties sold below 1 Million Dollars are over encumbered (They Are Maxed Out). The reason is because there are more realtors selling homes below 1 million and the realtors max out the properties. There are few number of real estate agents that sell properties above 1 million and they want to show the nicest properties, because their clientel demands it. So they sometimes pass up the potential equity properties just to show something nicer. This is the reality of real estate. So then you find a deal that has the minimum $500,000 equity. The competition is less, and you make more. You just capitalize on the mistakes of others who undervalue property. THIS IS LEGAL. The same Concept is used when you find a probate property that has equity. So find that free money and best of Luck.
“Regards”
Richard
Richard97:
When does your partner get paid? If he gets paid from the proceeds of the new loan that he acquired to pay you off… is the lender aware of that? If not, then that is NOT LEGAL.
That would be the same as a seller giving a buyer the money for a down payment, then raising the purchase price to cover it.
I’m not saying that it isn’t a great concept, and obviously very lucrative… i’m just saying that there are a lot of agencies out there working to crack down on these types of transactions.
Here is an article from CNN that explains the recent increase in mortgage fraud cases:
http://money.cnn.com/2006/10/12/pf/saving/toptips/index.htm?postversion=2006101213
In any case, this thread was initially started to explain financing options for a rehab. And in that case, I believe private lending is the path of least resistance.
John
Per RESPA AND HUD-All information must be disclosed. There are no Hidden Addendums or Connections with the escrow officer to give funds after close of escrow. The Example of the Saratoga, CA property is as follows: I bought the property for 1,500,000 and the FOLLOWING MONTH I sold it to My partner for 2,600,000. Then the 1,100,000 are the SELLERS PROFIT PROCEEDS and he walks away smiling because he got free money. The seller can then pay the Partner at HIS DISCRETION. You must remember to disclose all conditions to the property on the disclosures all the time. When you sell to your partner, Do a FOR SALE BY OWNER TO NOT PAY a realtor to do the paperwork for you.
Prior to purchasing any property go to www.orea.ca.gov and find 4 appraisers and call them to see if they can do the appraisal. You are not hiding anything from the bank, because You just make a REGULAR for sale by owner Sale to your partner. THE BANK DOES NOT QUESTION THE PURCHASE PRICE OR APPRECIATION, BECAUSE THE SELLER SETS THE PRICE. You Then List the property to the best real estate agent in your area that sells million dollar homes. YOU WANT ONLY THE BEST to sell quickly, so you won’t have to use much of your 1,100,000. You can also pay your partner whatever amount you desire. Remember to not give your partner equity share!! I understand your position, but you ARE NOT hiding anything from the bank, because it is a regular purchase for 1,500,000 and sale for 2,600,000. You need 1 loan officer to do both loans or 2 separate loan officers. I use 2 separate, One for the purchase and another for the Sale. Remember “No Prepayment Penalty”.“Regards” Richard.
John:
OR YOU CAN SELL THE PROPERTY TO YOUR CORPORATION INSTEAD OF A PARTNER!! You buy at 1,500,000 in your name or Corporation(Your name is eaiser,but your corporation is more protective) then create a Charitable remainder trust through an estate attorney and quitclaim into that trust after you make the purchase for 1,500,000, then sell into another of Your Corporations Your or Your LLC that you have!! Remember to live in the property to legally avoid Withholding federal Tax. Selling to yourself is done all the time, Just check county records of Multi-Millionaires!! And Corporations are set up and eliminated for such causes “For protection of assets”
“Regards”
Richard