Private Lending

12 Replies

There is a foreclosed distressed property in my neighborhood that is currently FSBO. I'd like to buy it with no money down to rehab and occupy. What's the best route for me to go provided it's a deal of course? Hard Money Lender? Equity Partner? FHA 203k?

None of the ways you listed would allow you to buy a property with no money down. As far as partners go, what would be in it for the partner since you plan to live in the property?

@Matt Good  

A private lender, partner or owner financing is about the only way to do no money down these days. All are tough to pull off if you are brand new. 

I think you are confusing your terms. FSBO is for sale by owner. If the property has been foreclosed the original owner doesn't own it any more. If the bank foreclosed and took it back it is not called a FSBO (even though the bank is the owner) it is known as an REO (stands for Real Estate Owned by the bank)

Good luck

@Ned Carey realistically speaking being a newbie what could I expect to have to put down as far as points/percentages go via HML, Equity Partner and FHA?

If a bank owns it, it will be listed to sell if not listed yet. If it is in marketable condition, passing the appraisal process, then you can look to FHA at 97% and obtain grants or bond money programs that might be available locally, there are also non-profits that may assist in homeownership that can equal or even exceed 100%.

These programs likely are not available for a property in need of repairs, some non-profits may assist.

No lender in their right mind gives construction loans to just anyone off the street, that property is their collateral so they must know the work is accomplished in a workman like manner, not done by someone without experience or skills. Again, a non-profit may step in, but you'll need a contractor and that means more money.

There can be other options if a bank doesn't own it, a bank will not go into any creative installment type deals.

Might find an investor to buy it, fix it where you might help, then buy from that investor allowing a profit for them, but, don't exceed the market value just because you love the place, at least not by much, seller financing does not add value to a property and you will need future equity to refinance the place later on.

If a bank just got it, most likely it's not really a deal, not yet, after they hold it you may get it for less.

I suggest you look to non-profits if you have any in your area, if you qualify with them. They can get a better deal from a bank than most any other investor/buyer as they can contribute toward the non-profit. I've had houses donated from banks to a non-profit.

Going that route may mean a longer period of owner occupancy too, like 5 to 7 years, depends on their program.

Good luck :)  

Originally posted by @Bill Gulley :

If a bank owns it, it will be listed to sell if not listed yet. If it is in marketable condition, passing the appraisal process, then you can look to FHA at 97% and obtain grants or bond money programs that might be available locally, there are

Might find an investor to buy it, fix it where you might help, then buy from that investor allowing a profit for them, but, don't exceed the market value just because you love the place, at least not by much, seller financing does not add value to a property and you will need future equity to refinance the place later on

That's exactly what I was thinking with an Equity Partner. Also, I would hire a General Contractor and over see the day to day operation being right down the street from where I live now. What's the chance (if any) that I could find an Equity Partner to do this being a newbie. This would be a flip only I'd end up buying them out in the end and having a little instant equity enough to take out a conventional loan. We're also assuming that it's a deal and the repair costs are spot on.

Equity will be established over time, you won't be getting instant equity for a loan, the loan to value is based on the purchase price or market value, whichever is less, after one year you can work off the market value, this leaves most hard money lenders out as they do short term financing.

An investor could buy it, sell to you on an installment and after a year (6 months with some, but doubt you'd get 10% paid that quick). Need to shoot for 10% equity or more, ideal is 20%, higher LTVs are just harder to qualify for on a refinance. Good luck :)

@Bill Gulley Is it because of the fact that I'll need to pay my EP his ROI that'll in turn lower my ROI thus making for a tighter LTV? I thought that you could buy a deal, estimate rehab/holding costs fairly accurately, have the house reappraised, pay your EP back+profit and then have enough sweat equity left over for a fair LTV ratio? Sorry I'm a newbie please bare with me! :-)

Hard money lenders may do that, where will that get you for a home you'll be living in.....and they don't do owner occupied loans. You will need longer term financing and I stated the rules.

The keys to the door in RE is financing it. Need to be aware of the general financing requirements that apply to what you want to do, after you know how to target the right financing that will be required you can work toward that goal. :)

Originally posted by @Matt Good :

@Ned Carey realistically speaking being a newbie what could I expect to have to put down as far as points/percentages go via HML, Equity Partner and FHA?

Typically expect to put down 20-25% with a traditional lender. HML will probably expect 20-25% of the purchase price but that will depend on the specific HML. talk to some and see what their guidelines are. An equity partner or private lender will be whatever you can negotiate.

I have had private lenders lend me 100% of the money I needed to do a deal. That is because I have a track record,.

I say you pass on this one as a property you will love in and look to lock it down under a cash offer using a realtor and bank negotiator that are great with foreclosures. Then find a money partner.

Chances are you won't get s shot at it as it will go to auction.

What you want to do is find a place in a similarly distressed situation but the owners are still there. Then you offer to help them out of the situation as work a short sale.

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