Financing

20 Replies

First deal investor here. I have found many REO listings I like but by the time I get to see them all and make an assessment, they are gone. I have an 800 FICO and I have been researching real estate in my area for a decade. I just can't seem to get financing in a timely manner without putting up 30k for a 70k house. There has got to be a better way, conventional is killing me. oh and by the way I own a 500k house and owe 300k on it. I have a portfolio worth a least 500k, but why should I risk tens of thousands of dollars of my own money. someone talk me off the ledge please I have yet another offer in on a house pending.

Welcome to BP, Scott. Your problem isn't conventional financing. It's you.

Blaming others isn't going to get you very far in real estate or life. You seem to have three issues, at least.

  1. One, too slow to when it's time to make an offer.
  2. Two, your offer isn't compelling enough.
  3. Three, you're going only after competitive deals.

You need to make offers in hours not days after houses hit the open market. If you're using conventional financing, then you need to make your offer more compelling (including pre-approval letter for the house and finance amount). Thirdly, look for off-market deals so your speed and financing are less of an issue.

I don't mean to insult you, but you have to look critically at your approach. Your agent, if decent, should have been telling you this before you even make the offer. You should be asking, too.

Best of luck!

Rick

You're worried about risking 4% of your assets as a DP on a property? By all means buy smart, but I fail to see your "risk".

Hi Scott!

I agree with Rick, your offer definitely needs to be timely. All the market research, and criteria should be done and your pre-approval should be available so as soon as you see a property of interest you can go after it. You also need to make your offer as intriguing as possible especially as competitive as REO purchases are due to the fact that majority of the time they're deeply discounted.

If your'e working with a Realtor defifnitely ask them for advice, that's what there there to do.....or at least supposed to :-)

Thank you. I am a realist, and I appreciate a slap once in a while to help me refocus. I agree with all and thank you for your insight, but where do you go for a loan that dos'nt require 20% down plus all of the origination fees and closing costs.

I am very fortunate, I don't want to sound greedy or risk adverse, but where are the "no money down" deals with creative financing I keep hearing about?

I havea pretty good stomach for risk, but my wife is asking, why are you getting a second mortgage, I thought you said 10-20k down, this is not what we agreed on".

I'm just looking for lenders with a quicker process with less up front fees. I'm not affraid of a million dollar loan, I just need to know where to go.

Hi Scott,

You are in a unique position. You have an asset most people don't, your credit score. 

Have you considered becoming a credit partner with an already established investor, or a new start up, (start-ups will give you more equity). Some people have the skills and deals already in place to make a good return with your help without any real risk to you. 

All you have to do is basically co-sign for their company credit and help them build their corporate credit profile while earning profits on deals along the way.

No money down deals are there, you simply have to have access to hard money, private investors or a combination of both. With your scores, your hard money options are great especially in combination with private money.

But be warned, this road is best traveled by those looking to buy, rehab and flip, as hard money lenders charge from 11% interest and up on a loan. You would qualify at the lower end of that scale, and get a quick close.

Don't let that rate scare you, a 20% profit on a flip is still all profit if you don't use any of your own money. 

Forget what all the Gurus teach about no money down there no such thing. Borrow the down from your family.

Joe Gore

I agree with @Joe Gore ...stop wasting time looking for the "no money down" schemes. Throw some skin in the game and pull the trigger. The best advice my father ever gave me when I was leery or scared to jump into the game was to "just do something". Get out there, learn, lose a little, make a little or make a lot...

Fact is if the deal is right, bring the necessary capital to the table and get it done. If banks want 20% to make the deal a go, just do it.

  

There are multiple ways to do low to no money down deals. Subject to deals where you get the seller to sell you the property and you assume their loan. Definitely some very specific education you need to understand  all the details and what that entails. Seller financing is another option from someone that owns the house free and clear (and obviously difficult to find).

But here is the one way that I use "creative financing" to buy and hold houses with little to no money out of pocket. Find a great deal AND use a hard money lender.

It is the one tried and true way that you can buy an investment property, rehab it and refi it with the least amount of money possible relative to a conventional loan.

The key, obviously, is being able to find a good deal. And I know there are tons of debate threads on here that speak to whats a good deal. But for this method to work, there is no debate as to what is a good deal. A good deal is one that you can be all in at (purchase plus rehab costs) for 70% of the ARV (after repair value - which means what the house will appraise out at once your rehab is completed).

Thats not to suggest that just because you're getting all in at 70% or better, its a great buy/hold deal. You still need to look at the numbers (i.e. mortg, taxes, rents, etc).  BUT the key is at 70% all in or better, you can buy the house with little to no money down. AND you can close much faster than most conventional lenders. Hard money lenders can usually hit 30 days or less. Conventional, using 30 to 60 days or more.

Here is an example of a hard money deal and your out of pocket.

1) Purchase price: 80k, Rehab costs: 20k.  All in price then equals 100k.
House appraises out at 150k.

Hard money lender lends you 100k (80k to buy and 20k for rehab). The only thing you come to the closing table with is their points/fees (typically 5%). In this case, you'd put down 5k.

You rehab it using their rehab escrow funds (which you may have to front and then request to be reimbursed once the work is completed and verified).  And then you refi with a bank (rate and term) the 100k loan.

So, at the end of the day, you own the completely rehabbed house and have a loan of 100k on it. You're only out of pocket is 5k.  On to the next one. 

Thats how I was able to spread my reserves out as far as possible. And I even had a hard money lender that would let me roll in the points for the loan as well so I was literally doing these deals with no money down. The one obvious catch is that you really have to cherry pick your deals and you have to hit your appraisals or it won't work.

Lets say that house that you estimated the appraisal at 150k comes in at 135k. Now the hard money lender is only going to lend you 94,500. So you are going to have to come up with an addition 5,500 plus their 5k in points to close that deal.  Its still far less than doing it with a conventional purchase where you put down 30% of the purchase AND pay the rehab out of pocket.

But to limit that out of pocket, you just have to find the right deals. Its all about hitting your appraisals and knowing your market.  

I would also echo some of the previous comments about getting your offer in fast. Watch the MLS every day and you'll see a house that simply gets mispriced. Get over there that day after work and have your offer in that night. Thats how you take advantage of those deals. I just had one that worked exactly that way. I saw the house pop up on thursday, looked at it thursday after work, offer in thursday night. They countered on friday, I countered back. They accepted.

The agent who also worked for the same brokerage as the listing agent told me that on friday they had over 5 requests to view the house. Had I not moved fast, I'd have been in a best and highest situation - and I have never won a single one of those yet in the 6 or 7 years I've been doing this. 

One last thing. If your house is worth 500k and you only owe 300k, why not take out a HELOC (home equity line of credit)? Thats the absolute cheapest money you're going to find. Then you could put your offers in all cash and prove the funds. And you can also set your offers to close in 10 days which would give you another advantage.

There is a fannie mae program that I believe allows you to do a cash out refi in the first 6 months when you pay all cash like that. Not sure how prevalent or easy it is to do. But after a year, I believe you can do a cash out refi as well as long as you have less than 4 mortgaged properties. Or you can always refi the thing into a portfolio loan where a local bank will do a cash out refi up to 70% with no seasoning as well.

You definitely have some options there......

Hey guys, let's forget the Guru's and talk real life. I just closed on a joint venture (JV) with a friend. I bought, rehabbed and sold a home in Chicago without using any of my money. I negotiated the deal, I got the contract, he provided the financing, and I managed the project.

Afterwards, we split the profits 50/50. The only money I spent was the earnest money deposit on the contract, and I got that from an investor, he got it back at closing. And my friend didn't use any of his money for the financing. (private money)

I needed him because he had what I didn't, contacts in the private money market.

I was taught that "Skin" can mean more than just money...

lots of great advice and education in this thread.  Nice job BP community . . .

Just to give you an idea. I don't have any money either to put into my deals BUT if you where my partner I will lend you 100% with in three day. I have an IRA that I can't use cent for myself but I can lend (or partner) my funds with anyone else ... cash and quick. So after you own the property (as a quick cash offer) you now have the time to refinance out into a convectional loan. So the key is to network build the relationship/trust and partner for the items you need. Remember 50% of something is better the 0% of everything (partner-up).

@Edwin Cruz  

@Donald Banks  

Great advice.  I'm looking at partnering for the purpose of building a track record of successful deals, so I can qualify for better terms from lenders, be they hard money, private, whatever. 

Another possibility with that 800+ credit score of yours is to find a local, portfolio lender and see if you can work out an LOC arrangement. At the very least you should be able to get a pre-approval letter that will satisfy POF requirements.

I am a new investor.  There are a LOT of things I don't know, and I can guarantee you I'll make a lot of mistakes along the way.  But, the one thing I'm confident of is my ability to make a decision and act quickly, not because I'm an expert but because I know my "farm" area.  I have focused on one school district for the last 4-month as I've been educating myself.  As a result, I can tell you with a very high degree of accuracy what a properties comps are, before I do an analysis on it.  I'm familiar enough with my "farm" area that the neighborhood and school is the only thing I need to make a decision on whether or not I need to stop what I'm doing and spend the additional 10-15 minutes it will take to complete the comps analysis.

I recommend you narrow your focus to a manageable area and learn everything you can about that space.  Then, just do it!

@Hattie D,

Great advice, I'm taking it too heart because I missed out on a deal waiting for comps from a broker. Now I'm studying a market I really like and doing my own comps.

Do you have a system you use for your analysis? I'm looking for a quicker way then what I am doing now. Time is money...

This post has been removed.

This post has been removed.

Originally posted by @Scott Freer :

First deal investor here. I have found many REO listings I like but by the time I get to see them all and make an assessment, they are gone. I have an 800 FICO and I have been researching real estate in my area for a decade. I just can't seem to get financing in a timely manner without putting up 30k for a 70k house. There has got to be a better way, conventional is killing me. oh and by the way I own a 500k house and owe 300k on it. I have a portfolio worth a least 500k, but why should I risk tens of thousands of dollars of my own money. someone talk me off the ledge please I have yet another offer in on a house pending.

I'm in the same boat, my credit score was only 780 though????. I'm taking that home equity and doing a HELOC or negotiating a special deal (lenders are competing for my biz!). Then I'm buying something this holiday season, rehab, and get some positive cash flow going, and then refy cash out as much as possible. Rinse and repeat (I think that's the term, disregard if it's wrong). Best of luck, love to here how things turn out since we are in similar proverbial boats.

Originally posted by @Scott Freer :

First deal investor here. I have found many REO listings I like but by the time I get to see them all and make an assessment, they are gone. I have an 800 FICO and I have been researching real estate in my area for a decade. I just can't seem to get financing in a timely manner without putting up 30k for a 70k house. There has got to be a better way, conventional is killing me. oh and by the way I own a 500k house and owe 300k on it. I have a portfolio worth a least 500k, but why should I risk tens of thousands of dollars of my own money. someone talk me off the ledge please I have yet another offer in on a house pending.

I'm in the same boat, my credit score was only 780 though????. I'm taking that home equity and doing a HELOC or negotiating a special deal (lenders are competing for my biz!). Then I'm buying something this holiday season, rehab, and get some positive cash flow going, and then refy cash out as much as possible. Rinse and repeat (I think that's the term, disregard if it's wrong). Best of luck, love to here how things turn out since we are in similar proverbial boats.

Originally posted by @Scott Freer :

First deal investor here. I have found many REO listings I like but by the time I get to see them all and make an assessment, they are gone. I have an 800 FICO and I have been researching real estate in my area for a decade. I just can't seem to get financing in a timely manner without putting up 30k for a 70k house. There has got to be a better way, conventional is killing me. oh and by the way I own a 500k house and owe 300k on it. I have a portfolio worth a least 500k, but why should I risk tens of thousands of dollars of my own money. someone talk me off the ledge please I have yet another offer in on a house pending.

I'm in the same boat, my credit score was only 780 though????. I'm taking that home equity and doing a HELOC or negotiating a special deal (lenders are competing for my biz!). Then I'm buying something this holiday season, rehab, and get some positive cash flow going, and then refy cash out as much as possible. Rinse and repeat (I think that's the term, disregard if it's wrong). Best of luck, love to here how things turn out since we are in similar proverbial boats.

Originally posted by @Scott Freer :

First deal investor here. I have found many REO listings I like but by the time I get to see them all and make an assessment, they are gone. I have an 800 FICO and I have been researching real estate in my area for a decade. I just can't seem to get financing in a timely manner without putting up 30k for a 70k house. There has got to be a better way, conventional is killing me. oh and by the way I own a 500k house and owe 300k on it. I have a portfolio worth a least 500k, but why should I risk tens of thousands of dollars of my own money. someone talk me off the ledge please I have yet another offer in on a house pending.

I'm in the same boat, my credit score was only 780 though????. I'm taking that home equity and doing a HELOC or negotiating a special deal (lenders are competing for my biz!). Then I'm buying something this holiday season, rehab, and get some positive cash flow going, and then refy cash out as much as possible. Rinse and repeat (I think that's the term, disregard if it's wrong). Best of luck, love to here how things turn out since we are in similar proverbial boats.

Usually by putting at least 20% down you avoid Mortgage Insurance which can add up so it tends to work in your favor. That being said, with your assets & credit score, putting less money down really shouldn't be a problem. I agree with what was said above, in the mortgage world it is VERY important to be timely! If you are able to get pre-approved before you even find a home, you can show that to the realtor and it will really make a difference. Conventional financing is not your enemy especially when it comes to an investment property! Hope this helps & you find the best property.

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you