Skin in the game for Buy and hold

11 Replies

After researching different ways to finance a Buy and hold, it seems like the better option would be to use a hard money lender.

the only issue I face and also a majority of new investors deal with,  is the lack of skin in the game. I have never owned a home, so I have

no real assets to put up to be approved finance through a hard money lender.

so my question stems, should I use a FHA loan for my fist investment (and home) for a buy and hold property , and then later utilize a hard

money lender for additional Buy and hold investments?

are there better ways to show skin in the game for hard money investors?

any suggestions would be appreciated! 

Your "skin in the game" is your downpayment on the property you're investing in. Whether you've owned a home, or not, isn't even a factor. Neither is your DTI, etc.

Lenders will look at your credit.  Some have a credit floor, of say 600, but others just look at it to see "why" your credit score is what it is.  It could be 520.  If the reason is you didn't pay a mortgage, or a constantly late on CCs for no reason, then they'll probably balk.  If it's because you had good credit, faced an emergency medical issue, maxed out your cards, but are working to pay them back, then they very well might.  

It's like applying for a job, and both the investment property, credit, bank statements, experience, all that is part of the resume.  That's one reason I appreciate Fortune Builders - most of their students approach this like a job, and when they send you a proposal, it's DETAILED!  Btw, I'm not promoting FB.

If it's a flip into a hold, you'll need anywhere between 15-30% of the loan amount on your end.  If the loan is $100,000 to purchase and $50,000 to rehab, with a lender giving you 85% of purchase, 100% rehab, you're going to need approx $25,000-30,000 to do your part of the loan, and the rehab. 

If you're flipping into a buy and hold, and the ARV is $200,000, keeping above numbers, then you can get a lender to give you longer term financing after some "seasoning" of 2-6 months (unless you're using delayed financing, which is all cash, then you cash out more quickly). Say the go for a refi, and get 70-75% of the ARV, now you're getting $140-150,000 back out, which you'll use to pay off the original Hard Money Loan.

I'm making this scenario look pretty, tight, and nice for the sake of ease, but that's the gist.

There are points, fees, interest payments, etc along the way.

But regardless of where you live, whether you own a home, or even have a job, if you can come to the table with a good deal, that fits the lenders numbers/expectations, and you have the financial capacity to do the loan, the loan you will do...

@James Martin FHA for the first one is a good move. I did that on my most recent one. Prior to that I used a portfolio lender to finance under 20% down for a couple owner occupant duplexes. I've been moving from small multi to small multi for 3 years now. One each year.

For the non-owner occupant places I've worked mostly with commercial lenders. Hard money for a buy and hold would be too expensive for me. The only way to do that would be if you plan to do the BRRRR strategy and refi out of it. If the place was performing you could likely go commercial.

I have two ideas for you. 

1.Buy a duplex live in one side and rent the other that can go through a regular home loan at a bank or credit union.  You will need some money down for this.  

2. Find a deal on a multi (5 or more units) find an equity partner that will put up the down payment, or find a mentor/partner in the project. 

Either way you need to make sure the ROI is cash flowing.

If you need help with either of these options there are a few people here that will help you once you think you are ready run it buy us in a forum. If you have any specific questions for me please tag me and I will answer to the best of my ability.

Originally posted by @David Weintraub :

@Joe Villeneuve - There are "Hard Money Lenders" who have loan products in the 5.5-8.5 range for buy and hold. I'm not suggesting using a short-term, HML, for a hold product. I'm talking about the longer term programs these lenders are rolling out.

5.5 - 8.5 year extended programs are NOT reasons to use them for holds. Their high interest charges don't like cash flow, and in 5 - 8 years, you are now looking to do what you should have done in the beginning...get a 30 year loan. This would be an example of the REI paying the interest on the note holding the property. Using a 30 year term is an example of the tenant paying the interest for you.

That "extended" term you are talking about is also an example of, "just because you can, doesn't mean you should".

These are 20-30 yr loans. When you're purchasing in LLC you're not getting same options as individual.

But that's what Visio, CoreVest, Athas, Civic, etc are rolling out, and people use them. I have local NJ Credit Unions who have better rates, but their qualifications are a bit stricter than the HML-type folks.

Originally posted by @Larry T.:

@James Wise Skin in the game means you have some cash in the deal.  Find ways to cut down your living expenses and get a second job to increase your income.  Save, save, save!

I will try ; ) 

Originally posted by @James Wise :
Originally posted by @Larry T.:

@James Wise Skin in the game means you have some cash in the deal.  Find ways to cut down your living expenses and get a second job to increase your income.  Save, save, save!

I will try ; ) 

 Haha!  Whoops!

Originally posted by @Joe Villeneuve :
Originally posted by @David Weintraub:

@Joe Villeneuve - There are "Hard Money Lenders" who have loan products in the 5.5-8.5 range for buy and hold. I'm not suggesting using a short-term, HML, for a hold product. I'm talking about the longer term programs these lenders are rolling out.

5.5 - 8.5 year extended programs are NOT reasons to use them for holds. Their high interest charges don't like cash flow, and in 5 - 8 years, you are now looking to do what you should have done in the beginning...get a 30 year loan. This would be an example of the REI paying the interest on the note holding the property. Using a 30 year term is an example of the tenant paying the interest for you.

That "extended" term you are talking about is also an example of, "just because you can, doesn't mean you should".

 It really depends on the value of the property you purchase, whether or not getting rates in the 5s makes sense for you.  I'm not into people speaking for others.