I found a deal. I have no cash nor credit.
I was thinking of going to a HML buying the house. It does not need a rehab. It needs some updating.
This seems risky to me. What would you do?
Hello future guru, and I like that name. So, let’s take a look at your situation here. You found a deal, you have no cash and no credit, and you were looking at a Hard Money Lender to obtain the property. But the property itself doesn’t need a rehab, just updating.
You say it seems risky, well, let’s take a look at this.
First off, your decision to use a private investment group or a hard money source is excellent, because a bank or a conventional lender would more than likely give you a big headache without credit or cash to put in.
Now, a private lender future guru, will not care much about your credit or your cash amount. They want to look at this deal to see if it makes sense and will make a profit.
A private lender is nothing more future guru, then a company where the owners have pooled together guys with a good amount of money, and those guys choose to invest it in real estate deals. Now, of course, these guys want to make sure their money is returned. Of course if the money isn’t returned, the lender can get the property, but they really don’t want to do that. They want to make the 14-18% rate on their money. The guy that put $100,000 of his money in, just wants to make the $14,000 in 6 months or 1 year when the loan term is up.
So we have to make sure you have a great deal, that makes a lot of economic sense. Then you structure the deal correctly, so that the LTV covers the purchase price, the rehab or updating price, and the closing costs, and this is how you equal the No Money Down Deals. So lol, it’s not magic, it’s a systematic process and preparation that must be done, BEFORE you obtain a property, that determines if the property is a great deal.
Email me future, at . Let’s talk about this further, I’ll give you some information on what you can do to create a great deal, give you some sources to fund that deal, and get you started.
I was thinking of going to a HML buying the house. It does not need a rehab. It needs some updating.
This seems risky to me. What would you do?
I think going to a HML is an excellent idea. Why is that risky to you?The risk falls on the HML.
HML’s want to take as little risk as possible. If they don’t think your deal is good enough they won’t lend you the money. It’s like getting a second opinion on your deal and a very good one at that.
future guru,
Real estate is all about the numbers. You said that you found a deal, but you didn’t give any numbers. A HML MAY be a good idea IF the numbers are right, but remember HMLs usually not only charge high interest rates, but also several points and/or fees up front. So, for example, if the HML is charging you 5 points, then you’re losing 5% of you profit right off the top. This must be taken into consideration when you do your potential profit analysis. With the real estate market very weak in many areas, you also need to be conservative with the holding cost estimates.
Is is risky? Show us the numbers!
Mike
Thanks.
I looked at the house today on the outside. The owner came to me because they know I am getting into wholesaling. They want out of the property. Their mother recently died and left it.
I told them that if I find an investor they would want to pay below 70% the value. They said that was fine.
The seller is my future mother inlaws boyfriend. My first approach is going to purchase it to live in myself and rent or sell my current house. I have not seen the inside. I will try to get in this weekend. I was told that it does not any rehab but it is outdated since an old woman lived there for over 30 years and never updated the kitchen.
I am going to sart my offer at 50k and will stop at 75k. If I lie waht I see on the inside. Zillow gives me a estimate of 185k.
I can’t work the real numbers yet because I have not been inside.
I am going to see what the current property tax is. Other than that and updating appiances what else should I be looking at?
Hard Money is a good tool to use when you need it, and you have a profitable enough deal. I don’t want to discourage you, because it can be done but it will be very difficult to get any kind of a loan with no credit, and no money.
Real Estate textbooks speak about it in common terms like it’s not hard to find, in reality it’s much more difficult to find than what they tell you. Real Hard Money lenders are supposed to use the property as the collateral and be less concerned with Credit and money down and 15 years ago that was true but now it’s changed to some extent. Lenders are going to make sure you can pay off the loan; they are going to look at your income to debt ratio. Most likely you are going to have to have some sort of cash available for the earnest down payment (percentage depends), appraisal fee for the loan and sometimes a fee charged by the lenders to get things started. If you’re going to rehab the house you either need to workout a deal with your contractors or you need to have some funds available to pay before you can submit a draw.
#'s didn’t work on this one fellas but thanks for all your help. I have another property that I am talking to an owner about.
lesson learned:
When talking to homeowner to talk about what % you are willing pay. They may be thinking of a % of 300k when you are talking about a % of 200k. Talk real numbers.
Why even bring percentages into the mix? Offer him a straight number. If someone said they would buy my house for 70% of value I’d think I was getting hosed. But if I had a house free and clear from grandma’s estate and someone offered me $150k in cash I would take it in an instant, wouldn’t even care if it was worth $200k…the owner would be looking at the $ signs.
Yeah, that’s the lesson I learned sort of.
A person I know approached me because they know I am getting into wholesaling and could find them a cash buyer. They were left the house in a will. To avoid wasting my time I made it clear that they would get less than 70% of the value.
Definitely, and check what you’re offering.
Like I said before in one of your other post Zillow is very inaccurate, but if the house was actually valued at 185 and you offered $50,000 you’re wasting your time and everyone else’s. Very rarely can you convey to a home owner that their house isn’t as valuable as they think, you need to be finding someone that already understands that or is very motivated to sell.