Advice Needed: Can this work?

Question

I would like to buy my next property as my own home and I would like to somehow "hack" the process. I don't want a 15 or 30 year mortgage. I originally wanted to just save up 70-100k and try my luck at a dfw auction for a 4bd+ w/ pool.. I've recently secured a hard money loan, but I can't take it to the auction. I need to have a deal/house in mind before I submit the application. The loan officer said that wholesale or pre foreclosure would be my best bet.

With that being said, Im not sure what's the best approach.. The little RE experience I do have is in buy n hold. With wholesale or pre foreclosure, I don't even know what the numbers would look like for a good deal. Any advice? And could my general idea work? Could I buy a wholesale/pre foreclosure with a 3yr hard money rental loan as my personal home(I have a "friend" ready as the renter of necessary), and pay it off early by paying direct to principal? I don't want to break any laws, so please let me know if any of this would be illegal. Any help is greatly appreciated.

Odie Ayaga · Answer

Hard money is solely for non-owner occupied properties so you wouldn't be able to purchase a property and live in it. Hard money loans also typically don't go as long as 3 years.

Mike Burkett · Answer

@DeMario Drummond  If you don't have cash, you can't buy at auction.  If you dont' have cash to buy non auction property, you need a loan.  HML won't let you live in the home.  You will have to finish construction then refinance into conventional loan.  If you can qualify for a conventional loan at purchase and you have the time, get the conventional loan and move into the house and fix it up.  This way you don't need to refinance (saves money).  If you don't want a 15/30 year mortgage because you don't want to make payments for 15/30 years, just pay additional principle every month until the loan is paid off.

Odie Ayaga · Answer

@Jerel Ehlert I think that would be overkill. He'd still have to pay off the HML through the sale. It would make more sense to just pay off the HML and not sell as he'd have to use cash or potentially a private lender which would put him in the same situation as above. A conventional lender isn't likely to loan on that kind of a deal as it's not arm's length.

Jerel Ehlert · Answer

You could buy it like a normal rehab/flip.  Buy with HML with a business purpose affidavit.  You cannot live in it during the rehab phase.  Period.  Fix it as fast as you can, then sell it from your LLC (rehab dealer company) to yourself, personally.  Sales price can be at cost.

Jeff Cichocki · Answer

@DeMario Drummond,

@Odie Ayaga is correct. You won't find a HML that will lend on something you want to live in. They also aren't going to let you go for 3 years. The interest rate over that long of a period of time would cause an an extremely high likelihood of them having to foreclose. Also, because HML's are for non-owner occupied properties, if you have your "friend" rent it from you and you end up moving in any way, they will foreclose on you as soon as they find out. And they will find out. All HML's get inspected periodically. You living in the property is a direct violation of the terms of the mortgage & note and grounds for a foreclosure. If that's what you were insinuating when you referenced your "friend", don't do it.

You may need to try to find a private lender who is willing to do this deal with you. You may very well be able to find someone at the local REIA's or MeetUp groups. Texas has very favorable foreclosure laws for lenders. They may be willing to take the risk.

Good luck!

Odie Ayaga · Answer

There's nothing preventing you from going after off market properties the way any other real estate investor might (e.g. direct mail, wholesalers, etc). Financing may be more difficult, but you can use FHA or FHA203k loans depending on the situation.

DeMario Drummond · Answer

@Odie Ayaga

OK I got you. So what would be my best approach to buying an owner occupied home for less than listing/market price? Seeing that the only way you buy auction homes is with cash or hard money loan. I just wanna be able to pay direct to principal to get out of the loan asap.

Advice Needed: Can this work?

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