So I am putting together a loan package to take to some local banks to secure financing for a possible first deal. Here is what I am planning to ask:
A loan of $54,900 at 7% fixed interest rate for 30 years to purchase the subject property (this is the property I am submitting to the bank with this loan package). This loan will be secured by interest in the real estate property.
A line of credit of $40,000 at 7% fixed interest rate for 30 years to repair this first residential rental property. This loan will be secured by interest in the real estate property.
A line of credit of $360,000 to purchase and repair four additional residential rental properties by the end of 2009.
My questions -
1 - I assume I will not be able to get the 30years@7% rate for NOO. Should I put more realistic terms like 20years@8%? I want to shoot for what I want… However I don’t want them to think that I don’t know that NOO typically commands higher rates.
2 - Please note that ARV for the property is close to $160k. So there is plenty of equity on the deal to support the $54,900 + $40,000 for repairs. Do you like the way I presented line 2?
3 - Am I making things too confusing by adding item 3 above? I was thinking about asking for additional line of credit to allow me to purchase and rehab 4 additional properties. I can state that I am going to use the money only when I find another property. And I am planning to secure it by those properties. Not sure if I am asking for the right thing. Instead of Line of Credit, I should probably ask for a letter of intent or commitment letter??? Is there a term that I can use? Or should I leave it out of this package and focus only on the deal I have at hand? Any thoughts?
4 - This is a REO. The asking price is $54,900. I am planning to offer $35k. I will probably be able to get it somewhere between $40k and $50k. I am planning to ask the lender for the full $54,900 just in case and then close with the lower amount. What do you think?
I am sorry if my questions are not as clear as they could be… There are a ton of information going through my mind and I am trying to get good advice.
It looks as if you have a pretty good deal. The couple of things that I would add are the following.
I don’t think you will find a 30 year amotization with a local bank. In the DFW area the longest I have seen is 25 years. The other thing is acting like you don’t understand the loan process or interest rates is going to make you look uninformed and they are going to question should they loan NOO rehab money to such a person. Not to mention if the banker your dealing with is unscrupulous they could try to take advantage of you. I think you should walk in there and present your deal, but let them know what you expect. Not hope that they take good care of you.
You will probably have to do a rehab loan with draws and inspections. A credit line is more like an open account that you can write checks out of and make payments on. I think that since this is your first deal you will most likely have to have some repair estimates done and submit them with the deal.
Good luck on your first deal. Hope this helps.
I would skip step three until you have an established relationship in place. an unsecured LOC for 360K is not something that gets handed out to strangers.
Quick question - what are the typical terms for rehab loans? Do you feel 20 years @ 7% doable? Or you feel the market typically goes for shorter term? Thank you.
PS: I agree with your suggestion regarding item 3 below. No point in causing confusion at this point.
I am working on a NOO rehab right now with a state bank and the borrower is paying the T-Bill plus a margin of four. So their rate is 6.15%; however it is a 12 month adjustable with a 25 year amortization. Meaning it adjusts every 12 months. It is a pretty sweet deal. So to answer your question…yes those terms are out there.
Christopher - thank you for the information. I will try to get a fixed rate. Good to know my terms are doable. Actually I am now thinking that instead of asking for specific terms I will ask for the money and let them tell me the best terms they can offer. What do you think? Should I go in asking for specific terms or let them tell me the best they can do?
They are going to give you what terms they have available. The local banks that I work with do not offer yield to their employees or brokers who use their products. They will tell you what products they have and once you pick one they tell you the rates and the terms. Most of the time it will be an index (12 MTA, 1 year T-Bill, etc…) plus a margin for a short term fixed number of years (3,5,7) with possibly a balloon payment at the end.