I’m looking at properties where the cost to purchase and rehab would be under $50k. I’d like to borrow the purchase and rehab costs. I plan to hold them and use them as income properties.
My FICO is in the 620’s. I’d like to put as little down as possible but the FICO hurts that. I’d be happy with 90% ARV. I can do full doc for the 1st 2-3, then it’d be best to go stated so I can aquire faster.
Anyone have recommendations for smaller loans like this?
What’s the purchase price?
What’t the rehab costs?
What’s the value of the property after repaired?
Just did one of these. Purchase was 40K, 20K rehab appraised at 80K. Visit some local banks in town. They will give you the best deal in my opinion.
Nate-WI
I haven’t identified a specific property. I want to identify a lender that specializes in these types of loans.
Right now, I’m looking at houses that are $5k with $10k in rehab with ARV of $25-30k. That’d make my LTV better than 65% of ARV. Then I want to hold them for income properties,
The properties are in Michigan.
Most hard money lenders have a minimum loan amount. You’ll probably be under the majority of their limits. However, they may consider putting several properties together under one loan.
The only problem that leaves is finding the refinance since hard money is short term.
A conventional lender would not be able to refi them individually because of the loan size. A bank may be able to put together a blanket loan for mulitiple properties.
Nate’s suggestion of contacting a bank was good. Speak to the commercial lending officer. Start there to see if you can get the rehab and long term financing. If they cant do the rehab at least see if they would refi the hard money loan.
Being at a low ltv and having properties that cash flow will be a big plus at the banks.
I was thinking about this more last night. I have enough cash to pay cash for the 1st one (purchase and rehab). Then once I have it cash flowing wouldn’t it be easy to do a home equity loan to get 80 or 90% of the ARV out of it? Home equity loans have far lower transaction costs than a traditional mortgage or hard money lender.
If my costs were only 65% of ARV, then I’d be getting 15-25% of ARV as capital for the next one. It’d be a little slower aquisition speed than borrowing to buy but it’s also makes financing fees much lower.
Is this a better idea?
For me…my personal opinion…is not to do this. I would rather keep the liquid cash in my pocket for suprises, holding costs, closing costs, etc. I use the banks money to finance my deals. Plus the cash looks good to the banks so if something does go wrong they know you have funds to cover. Plus in your first post you stated you wanted to aquire properties faster. Get in good with a broker or a local bank, build a relationship, and they will loan to you over and over again without using any of your money.
Nate-WI
i did exactly what your saying bought house 25,000 from o/o and fixed it and refinaced in a month with chase bank with an equity line. problem is ins. and taxes not included in that and an equity is a variable rate and went up after 4 months. true no closing costs nor appraisal. i wish i would have got a regualr mtg took my money put in business account with ins and taxes incl in payment. would have been easier to keep track of cash…next time. good luck!
I am a hard money lender in Grand Rapids, MI. We can lend up to 85% ARV on a 12 month interest only balloon. We can also look into rolling in 6 months of payments.
Tony Brokaw
Central States Mortgage
Don’t you have a branch in Appleton, WI? A Jim K. that works there? I think your closing costs and points were high. Under 100K it was 6K. Over 100K it was 6.5K
Nate-WI
Yes we do have a branck in Appleton. As far as fees being high its a matter of opinion. This isn’t a conventional loan its hard money lending 85% of ARV and up to six months of payments escrowed in. Essentilally the borrower, in most cases, will be able to walk into a property with nothing down. Were not going to do the loans for free. We currently service about 60 million in this industry.
I understand nobody does business for free and I understand its hard money. I’m just trying to figure out your points and interest compared to others which I’m sure you can appreciate.
Explain to me how an example deal would work. Sales price being 100K. Rehab is 20K. Appraisal value is 150K. Your fees, payment schedule, terms, etc.
Nate-WI
Loan amount is going to be a max of 85% of ARV(after repair value) so if the future ARV is 150k then your max loan amount is $127,500. Our fees would be about 7k and we could also escrow in up to 6 months of payments as well so you don’t have a payment on the property for 6 months. The overall term will be on a 12 month interest only note. Rate being anywhere from 11.99 to 14.99. In most cases we have room to roll in all fees, rehab costs, 6mo payments and the purchase price. In your scenario you would be short unless you lowered your rehab costs or negotiated the purchase price down. I hope that answered your question.
That works. Thanks.
There are tons of options on deals like this…
If you need plugged into some investors or Hard Money guys give me an email.
Cash should NOT slow you down these days!!
Tony