Rental Property Investor · Fort Mitchell · Member since 2020 · 3 posts · 0 votes
Hello all, I currently have two rental properties. One has been a rental since 2006 and the other since 2010, I currently have approximately $160K of equity in one rental, with a 3.25% interest rate (VA loan) and approximately $95K in the second one, with a 5% interest rate (Conventional loan). Due to the current interest rates I'm not sure about cash out refinancing on these properties. I want to expand my real estate investing, by getting into flipping a few properties, and building my portfolio with the BRRRR method of real estate investing. What would my best option for getting funding for my first flip? I plan to bid on a property at the next auction in my area, to obtain my first flip property. What is the best way to get funding for an auction? I have talked to a few hard money lenders but, they want you have experience with flips. Advice will be greatly appreciated.
1. Since you do not want to do a cash-out, you can look into a HELOC. This would not change your current interest rate, but it would allow you to access your equity. You can use this money to fund the down payment for the flip.
2. The issue with buying at auction is that you typically need a cashier's check or the funds available to purchase the home within 24 hours of the sale. Traditional lenders cannot meet this requirement so you would need to use a hard money lender. The problem you run into there is that they will only lend on experience.
You have two options with that in mind.
1. If you are looking for properties that will cost $200k to buy and rehab, you would have enough funds to buy it cash at auction after closing on your HELOCs. You could then self-fund the rehab and pay off the HELOC in a few months once the property sells.
2. You can get connected with wholesalers or off-market sellers to find people that do not mind a 30-day closing. This will give you time to inspect the property and ensure there are no hidden expenses as well as obtain financing. You can get a fix and flip loan with 6 or 12-month interest-only payments to keep your carrying costs low while covering most of the purchase price and rehab.
Hope this helps! Let me know if I can be of any assistance.
1. Since you do not want to do a cash-out, you can look into a HELOC. This would not change your current interest rate, but it would allow you to access your equity. You can use this money to fund the down payment for the flip.
2. The issue with buying at auction is that you typically need a cashier's check or the funds available to purchase the home within 24 hours of the sale. Traditional lenders cannot meet this requirement so you would need to use a hard money lender. The problem you run into there is that they will only lend on experience.
You have two options with that in mind.
1. If you are looking for properties that will cost $200k to buy and rehab, you would have enough funds to buy it cash at auction after closing on your HELOCs. You could then self-fund the rehab and pay off the HELOC in a few months once the property sells.
2. You can get connected with wholesalers or off-market sellers to find people that do not mind a 30-day closing. This will give you time to inspect the property and ensure there are no hidden expenses as well as obtain financing. You can get a fix and flip loan with 6 or 12-month interest-only payments to keep your carrying costs low while covering most of the purchase price and rehab.
Hope this helps! Let me know if I can be of any assistance.
Rental Property Investor · Fort Mitchell · Member since 2020 · 3 posts · 0 votes
4y
@Andrew Garcia, Thank you for your advice. I hadn't thought about using a HELOC to fund the purchase and rehab, then pay off the HELOC after the property sells. Thanks again!
Philadelphia, PA · Member since 2017 · 71 posts · 17 votes
4y
@Abigail Glover Hi Abigail. I think that you are in a great position due to the options available to you. Whether you do a cash-out refinance or a HELOC, your PITI payments will be higher for your current properties. How much more depends on the interest rates, but ultimately your payments will be higher, but you'll have the funds to proceed with expanding your portfolio.
Once you have the funds, you'll have even more options. You can purchase the property in cash and finance the construction via private/hard money or a construction loan from a bank. You also would have the option of leveraging private/hard money to fund the acquisition and construction of the property. All of this information is applicable for purchasing at an auction or an off-market/MLS deal. There's slight differences, but have the initial pool of money that will be pulled from the equity in your properties would be the catalyst.
The bottom line is that you have options. Crunch the numbers, make your decision and grow that portfolio!
Rental Property Investor · Fort Mitchell · Member since 2020 · 3 posts · 0 votes
4y
@Kenneth C. Hello Kenneth. Thank you for your advice, it is greatly appreciated. I just need to decide which way I want to go with funding and pull the trigger.
Lender · CA · Member since 2022 · 48 posts · 23 votes
4y
Hi Abigail!
A HML is definitely the way to go on this. HML's are as good as cash offers in most cases which gives you more leverage on your offers. In an auction, it can get a little tricky just because of the range of financing amount you may need on the pre-approval but it isn't impossible. There are HML out there, including myself, who work with new investors. Being new should only give you lower leverage, not disqualification!
I would agree that Hard Money is the way to go! I'm a relator in GA but I focus in investment properties exclusively. That said, I have plenty of investors that put in HML offers with the backing of our preferred HM lenders and we have had great success! Feel free to connect if you'd like to speak further.