Purchasing under $50K

8 Replies

Happy Memorial Day all,

I live in Baltimore and there’s a good investment property that I’m very interested in. The problem is that it’s going for under $50k and lenders don’t like to lend under that amount.

I also have 6 properties and it's starting to be a real hurdle for me to buy more rentals though the conventional methods. That being stated, can any of you fine folks (experienced investors) provide me with some guidance? Hard money lenders, local small banks, LOC?

I’ve flipped a property last year and it’s not something that I want to do moving forward. My primary focus is to buy and hold.

Thank you in advance!!

We've had luck getting loans on cheaper properties when we package a few of them together to refinance them after we've owned them for a little while (we bought them up front with private loans). You may want to ask about this possibility with some of the local banks.

Find local banks in your area.  The area that I'm investing in has local banks/credit unions that do $30K - $35K loans.  You have to dig around.  Maybe ask around at your local meetup groups to get recommendations/referrals for these banks or what others are doing to finance these under $50K properties.   

Hey @Patrick Reisinger ,

Financing these cheaper properties can be difficult. There are options, however, you just have to look a bit harder, and they tend to be more expensive.

1. Hard Money- You'll need to find a lender that will do smaller loan amounts, this is probably easier to find than a bank that will do smaller loan amounts. You may also potentially find a hard money lender who will fully amortize this kind of loan. I know a few in Baltimore that do it this way, and at the end of the short term you have a paid off property. Could be an option.

2. If you acquire with HM you'll likely need a bank to refinance you out. This could be difficult if you continue to go the conventional way you've been going for two reasons. A, you'll likely have this in an LLC and will have to put it back into your own name, and B, you'll be looking at smaller loans which are hard to get. Sometimes you can package these up, sometimes you can't. Depends on the bank. I've had luck by promising continued business if the bank will refinance me out under their limits. Can't hurt to ask.
3. Private financing- Buy with friends/family money and hold for a short period of time and then the refinance may be easier for you. 

Whichever way you decide to go, I would recommend trying to improve the property when you purchase. This will allow you to build in equity up front, and it will make things easier on your refinance. If the values are over 75k for rehabbed properties, you will be in much better shape to get your refinance. 

Originally posted by @Jarred Sleeth :

Hey @Patrick Reisinger ,

Financing these cheaper properties can be difficult. There are options, however, you just have to look a bit harder, and they tend to be more expensive.

1. Hard Money- You'll need to find a lender that will do smaller loan amounts, this is probably easier to find than a bank that will do smaller loan amounts. You may also potentially find a hard money lender who will fully amortize this kind of loan. I know a few in Baltimore that do it this way, and at the end of the short term you have a paid off property. Could be an option.

2. If you acquire with HM you'll likely need a bank to refinance you out. This could be difficult if you continue to go the conventional way you've been going for two reasons. A, you'll likely have this in an LLC and will have to put it back into your own name, and B, you'll be looking at smaller loans which are hard to get. Sometimes you can package these up, sometimes you can't. Depends on the bank. I've had luck by promising continued business if the bank will refinance me out under their limits. Can't hurt to ask.
3. Private financing- Buy with friends/family money and hold for a short period of time and then the refinance may be easier for you. 

Whichever way you decide to go, I would recommend trying to improve the property when you purchase. This will allow you to build in equity up front, and it will make things easier on your refinance. If the values are over 75k for rehabbed properties, you will be in much better shape to get your refinance. 

 Couldn't have said it better myself, @Jarred Sleeth! I agree wholeheartedly.

My first rental was through a HML and am now going through the refinance after adding value to the property. I have shifted my focus to using the BRRRR strategy along with your step #3 of private financing to complete the lifecycle.

After having this experience and using social media for friends/family to walk the journey with me, They see me with more credibility and trust in me to engage in a financial relationship with them.

A lender i'm currently working with accepted to do a lower PP because I'm refinancing #1, and purchasing #2 & #3 with him. Just another idea to package them together!

@Patrick Reisinger , I agree with @Alex Flores .

Local/regional banks and credit unions will offer portfolio loans (loans they will not resell). They are vested in what goes on in their local community and regularly make these kinds of loans. The underwriting is usually simpler and if you use the same lender over and over it becomes more relationship based as they become familiar with how you do business.

Typical terms will likely be different than the conventional loans you are used to though. I would say a typical loan would be a 15 year adjustable rate 75% LTV fully amortized loan at prime + 1% interest rate. That would be typical in my area, but of course it might be a little different in your area.

@Kevin Sobilo Thank you! I don’t jump on this app as much as I should, but after my OP, I’ve done some digging around with local credit unions and portfolio lenders such as Visio. They offers ARMs, which are what I’m trying my best to avoid and the upfront fees are quite high.

@Patrick Reisinger , adjustable rate mortgages are common for this type of property. The terms for commercial loans is different than conforming loans for owner occupied properties.

It took me a while to accept that the loans were so different than I was used to for owner occupied homes. As long as the numbers work, they work. You will likely make more money by being able to move onto another deal faster.

Also, keep in mind that with an ARM, rates can go down as well. They aren't always going up. The payment on a small loan would not change that much with an adjustment because the loan amount is so small. If you needed to lower the payment after a few years, you could refinance and stretch the payments out again.

Of course, if you can find better loans all the power to you. Get the best you can find.

Hi Patrick, I am a local hard money lender as well as an investor with rental properties. You said the purchase price was under $50k, what will the rehab cost be, and then the value after rehab? I would have to assume most properties in the Baltimore area being bought for under $50k, will need some work. Based on these numbers, you might have more options than you think, though you likely will need to find local funds, such as smaller local banks, credit unions, private investors, or hard money. As you do more properties, you will need non-conventional sources such as these. If the ARV is under $50k, and in rougher areas, then those are surely more challenging. We do those 60 month fully amortizing loans on a case by case basis depending on the property and borrower. There are a few of us in the area that do these, and at the end of the 60 months, you own the property free and clear. While these are more expensive, they accomplish the goal and the rent should still cover the mortgage and throw off a little cash until you pay it off.

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