Should I buy it? Deal break down. What is a construction loan

4 Replies

Dyslexia Disclaimer.  look past the typos.

I have a chance to buy a 4 plex! I am bidding on it at auction. Up to $34,000.  The Bank's reserve is 16k.  It is class C-/D+.  We all ready own similar properties and we have systems to manage the demands which comes with this tenant pool. 

The problem? It is a 24 hour closing. Aka no appraisal. We really need to get our cash out after rehabbing it. And this area is the wild west of appraisal values. I will really like some feed back of any one who wants to put eyes on. The address is 913 Cotton Ave SW, Birmingham AL . I have a though of what the ARV is. But I really would like some one to give their opinion with out me casting a shadow them.

Numbers

Asking up to 34,000

Rehab $32,000

Evictions $ up to %1,200

Rent, $500/mo per unit. (24,000/yr) 

We will be buying in cash.  We will use a construction loan for the rehab.  We will exit via a 30 year fixed.

Some other questions.  I never have got a construction loan.  The last rehab we did was out of pocket ($12,000) and we recaptured that on the refi.   So how do construction loans work? 

Oh and I have to buy in 36 hours!

PS

The property is occupied, The tenants refused to pay do to the condition of the property.  They are on new leases with 9 months to go. The current property manager just took up the building 3 months ago. The tenants are now on repayment plans.  I am ready to evict if they don't/can't pay rent.  This county as a 3 week turn around form the date filed.

A construction loan is a short-term bridge loan that you must replace with more permanent financing.  Since it comes with a higher risk, it costs more than regular mortgages.  Contact a broker or look in Scotsman Guide to find an appropriate lender.

Check your costs on the bridge loan to see if you aren't better getting a fixed loan on the free and clear property and adding an equity line of credit after repairs are complete or refinance.  Play with the figures until you get the right combination to maximize your profits.

I hope this helps!

Holler if you need me.

Best regards,

Mark

@MARK  Thanks, good info.

are construction loans Loan to value based off the current 'as is' market value or off the ARV?

And what are general LTV's that you have seen?

@Wilson Lee I own a quad on Center Way S right around the corner from you! I have done a handful of renovation loans with local banks here in town and would be happy to pass the contact to you. Feel free to reach out anytime!

Sounds like you know the market well, and I think your numbers look great. You should be able to get Sec 8 in there and get a little higher than $500/mo each. Good luck!

Are you sure you want to go to that area? Good news you are close to hospital in case you get shot. The bad news is the tenants don't pay rent and if you have to borrow money you don't have a lot of time to empty it out, rehab and go thru process for new tenants. You will need a bridge loan for at lease 6 to 9 months. That's a long time to be paying on borrowed money. Good luck JP.

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