So I've found an apartment building I like and makes money from day one. Only problem is that this is my first one so banks are very nervous. Only true mortgage offer wanted 65/35 LTV which puts my downpayment at a mark I'd rather not part with.
My broker said that they could put together a hard money loan in the 80/20-75/25 range and have interest only payments until I refinance. This seems like a strategy I've seen before esp with newer owners as it makes acquiring the property much easier. Interest only sucks so obviously the goal would be to refi as quickly as possible once the property is mine. It would also seem to be much easier to refinance at decent rates with the property already in my possession.
Looking for anyone with experience doing this or have and horror or success stories to share?
It's really the points and fees that I don't like. Interest only payments is ok but you don't want to do that for too long.
I use this strategy on most of my property acquisitions. I am doing it with SFH's though. With Multi-Family I would think there is more opportunity to drive value through increasing occupancy and rehabbing the property. So when you refi out you should be able to recoup your initial investment.
35% equity is not bad at all, if its slam dunk investment, then reducing your leverage will be fine. For your first deal and all sorts of unexpected costs, why not just reduce risk and put more cash down?
Don't focus on what it will cost you to buy it. Focus on how much it will make you. The lender may be smarter than you are. Keep that in mind.
@Anthony Dooley I don't doubt that the lender is smarter than I am at this point. I'm not sure what you are saying with that though? Meaning the property might not be a good one?
Ronald Rohde how do you see putting more down as reducing risk? It would seem that tying up more money into the property leaves less for expenses and unexpected issues, no?
@Tony Castronovo had this strategy worked well for you? How long do you wait until you refi? Obviously it will be different with commercial but I'm still interested bc I've never thought to use it for SF
The lender is your partner and they usually will not let you get over leveraged. They may see risk that you don't. If you are credit worthy, I would avoid hard money lenders. I would close on the deal, increase the NOI, and look at refinancing in 6-12 months to get your down payment back out.
Yes, this strategy works well for me. I also use private money for the acquisition. In my case it's not a matter of credit worthiness. Most conventional lenders for residential SFH's won't lend on a distressed property. And it's less money out of pocket since my loan is usually 70% ARV or in some cases the full purchase price (I pay for the rehab with cash).
When I refi it's usually between 60-90 days. But without the typical 6-12 months of seasoning I can't do a cash out refi. I just get 75% LTV, which can cover some closing and/or rehab costs.
With multi you can raise the value by raising the NOI, as others have mentioned. With SFH's the value is based on the appraisal...so not too much control.
To add another perspective there is a conventional lender I know that will loan on a 2 to 4 unit for an investor and throw in money for rehab in the same 30 year amortization loan with 20 to 25% down. All numbers must work so lender will not allow you to be over leveraged. Its a personal loan so no LLC. Rates around 5.5% but on a 30 year payment. These days hard money lenders are at 12% from what I see. Then after rehab refi it to a normal lower rate loan. This is a relatively new renovation loan product.
Okay well my credit is excellent. I've been dancing with a couple potential lenders but it seems like no one actually wants to make any money. I call and email and provide everything required and then get excuse after excuse about why they have been delayed or haven't gotten around to my loan yet, and that's IF I get a response at all.
Does anyone have ANY advice on who I can go to that will actually help me get this done or how to find financiers that aren't to busy to, ya know, finance? This has been an incredibly frustrating month.