Buy & Hold

16 Replies

Hello,

I am trying to pickup my first buy & hold (first real estate investment period)... I have some potential properties, I have some people who would lend hard money based on the deal alone. My only problem is this... Once I buy the house and put a little money into it... What next? At that point I would be in 4 points (not much total based on the properties I am looking at)... and I would have 12-14 months to pay back the hard money... Do I refi conventional? If so, how can I really amass a portfolio doing it that way? I would have a million loans in my name... is that even possible?

Thanks everyone in advance... Biggerpockets has also been a big help in the past!

Thank you,

Shawn - The Newbie!

This post has been removed.

@Shawn McCarty

I would recommend researching the smaller banks in your area.  Many of them offer commercial loans for residential investment properties.  You can get one commercial loan for multiple investment properties.  These are known as portfolio lenders and they keep the loans in house instead of selling them off like the larger banks do.  If you buy the property right (at a discount) using hard money or cash, many banks will allow you to refinance the property after being leased for 6 months and it will be based off the appraised value not your purchase price.  In many cases if you buy the property right, you can end up with a property that you have zero invested in cash flowing.

@Shawn McCarty

What price range are you looking in? Rather than a hard money lender with high costs, have you considered/can you qualify for a personal line of credit? I use a line to buy and rehab then refinance to a traditional mortgage once the property is leased. I have used this model at least 20 times. I would use hard money as a last resort.

Originally posted by @Ken Vesely:

have you looked at any soft money portfolio programs? 

Hello Ken,

Not very familiar with this... Could you explain more?

This post has been removed.

Originally posted by @Ryan Billingsley :

@Shawn McCarty

I would recommend researching the smaller banks in your area.  Many of them offer commercial loans for residential investment properties.  You can get one commercial loan for multiple investment properties.  These are known as portfolio lenders and they keep the loans in house instead of selling them off like the larger banks do.  If you buy the property right (at a discount) using hard money or cash, many banks will allow you to refinance the property after being leased for 6 months and it will be based off the appraised value not your purchase price.  In many cases if you buy the property right, you can end up with a property that you have zero invested in cash flowing.

Hello Ryan,

I am not at all familiar with portfolio lenders. How does a commercial loan cover residential investment? Also... what is the lending criteria on something like that?

With the hard money reference... Lets say I do 50K hard money total (4 points out of my pocket at 2,000)... Loan terms are 12 month... I complete the work in 3 months... get a renter in month 4... I have them rent for 6 months... Then what? I go to a bank and say.... lets refi? They say ok... house is worth 80K you need 20% down... so that's 16,000... I am into the hard money guy for 50K, out of pocket 18K... I get 80K from thank... 50K to hard money guy... plus my 18K... I have 12K left over in my bank account right? AND I am still into the bank for 80K... right?

I am probably missing something... Could you help me out please so I can understand?

thank you,

shawn

Originally posted by @Jeff W.:

@Shawn McCarty

What price range are you looking in? Rather than a hard money lender with high costs, have you considered/can you qualify for a personal line of credit? I use a line to buy and rehab then refinance to a traditional mortgage once the property is leased. I have used this model at least 20 times. I would use hard money as a last resort.

Hello Jeff,

I am looking total purchase and rehab in the 30K range... possibly up to 50K. I could not qualify for a personal line of credit for that much. I will be honest around here I don't know people who could. Unless I am misunderstanding you.

Thank you,

Shawn

@Shawn McCarty

The best way to fully understand how the portfolio lenders work is to call the banks and ask questions.  Each bank will offer their own specific terms and loans.  

Most will loan 80% LTV based off appraised value. So if your property is worth 80k they will loan 64k.

@Shawn McCarty you might check with a couple of banks. I started out with a $50,000 line of credit from a local bank. They aren't really very hard to qualify for. I had a decent job, but no assets. If it isn't possible, go with hard money, but keep it short term or the interest costs will eat your equity FAST. Look for a program that will allow a refinance based on appraisal (not purchase price) prior to the 6 month standard. There are a few programs available.  I have used Zuess mortgage in the past. Another thing to consider is that it may be difficult to find a lender willing to write a $30-40k mortgage. Get your exit strategy paper out before you buy

Originally posted by @Jeff W.:

@Shawn McCarty you might check with a couple of banks. I started out with a $50,000 line of credit from a local bank. They aren't really very hard to qualify for. I had a decent job, but no assets. If it isn't possible, go with hard money, but keep it short term or the interest costs will eat your equity FAST. Look for a program that will allow a refinance based on appraisal (not purchase price) prior to the 6 month standard. There are a few programs available.  I have used Zuess mortgage in the past. Another thing to consider is that it may be difficult to find a lender willing to write a $30-40k mortgage. Get your exit strategy paper out before you buy

 Jeff,

That's my problem... I don't understand the exist strategy... Reference my comment above about refinancing... 

There's a few things you can do. So, if you're talking about flipping houses, and you ran the numbers using the 70% ARV rule and know what your profits should look like, yeah using a hard money lender (HML) is totally fine, but your profits will definitely take a hit from their points and rates, and closing costs if you aren't an agent yourself, having to pay for that. Now if you want to actually build a portfolio, what I'd recommend is using the BRRR strategy with your own money. Buy a house for 50k, put 15k down, then put 15k into it, then it's worth about 85k, rent it for $1,000 a month, profit of $350 per month. Then do a cash-out refi and buy the next one and do it again.

Also if you don't want a million loans in your name, buying multi's cashflows better, and then you'd have less loans. Hope this helps.

In the scenario you have laid out- you will not be out of pocket any $ at the end of the transaction, and depending on the loan/closing costs, you will probably put a few thousand in your pocket. If your buy and rehab are all included in the $50k hard money loan, and the ARV is $80k - when you refi (as soon as you have it leased or after six month seasoning if required by your mortgage product) you will be able to borrow 75-80% of value - so, $60-64k which will pay back your $50k hard money loan. Your "down payment" will be the 20-25% equity the bank requires

@Jeff W.,

I completely agree I would potentially have money in my pocket. But, with that strategy how long does it take to build a portfolio... you know what I mean? Buying one buy and hold at a time... hard money refi's... again... tons of loans... long periods of building a portfolio... longer periods of having the portfolios paid off... just my outlook, once again... could be looking at it wrong.

thank you,

Shawn

@Shawn McCarty

 Yes, it will take some time… You should be able to acquire one property every six months pretty easily… Two per year adds up pretty quickly… That's why they say real estate is the get rich slow scheme

@Shawn McCarty thanks for post and asking some of the questions I've been reluctant to ask.  I've read numerous blogs, listened to numerous podcasts and read the recommended books and I'll be perfectly honest...my brain is on information overload. This is soooooo much information to digest.  I now have a good understanding of hard money and would use it as my last resort but the exit strategy is my fear...some hiccup leading to potential risk.  I am afraid a re-fi wouldn't be as easy as everyone make it appear to be.  I own a property free and clear but am having difficulties being approved for a construction loan.  Credit is great but debt to income ratio is high given my self employed status.  Hard Money may not likely be a proper avenue for my situation.  You guys have given me more insight and more information to digest ;)

Thanks!

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