If I want to start off with a hard money or portfolio lender, how do I approach these entities for money?
Call 'em up! Be aware they will want SOME real estate experience, most likely. If you have none, you may need to partner with someone the first time.
My realtor is asking for a pre-approval letter before we go out to look at houses. How do I get this with a hard money or portfolio lender?
They will give you one. But be careful about the Realtor calling the shots. He or she should pre-quality you, but they don't deserve to know much about you or your business.
We have proof of our own funds that matches the amount we would be receiving from a lender. Could I just show this to get the ball rolling and then deal with the other lending possibilities when the time comes to make an offer?
That's what I do.
1. Find distressed property and make an offer of 50% of the ARV. Let's assume offer is accepted and everything is negotiated and agreed upon in the option period.
Your offer price depends on many factors, most importantly, the cost of the rehab. I don't do any deal that doesn't have the potential of making $20,000 if I need to sell it soon. What's your minimum profit? For your first property, I think you should stick to ones that just need <$10K of work ....mostly cosmetics. In my current case (HUD home), I paid $108,000, I've budgeted $10K for repair, and I expect it to be worth $145,000 when I'm done. I will then lease-option it at $1450/mo. I've got an offer in on a Fannie Mae home. They are asking $130,000. It needs about $10,000 in improvements/modernization. I'm offering $121,000 and it will be worth north of $160,000 and produce $1600 in rent. The point is, in either case, if I need to sell, there is at least $20,000 I will make NET. Think of it as a margin of safety.
2. Get hard money or portfolio lender to cover the cost of purchasing the home (does their name go on the title/note, etc. and should a RE attorney be involved in any way?)
Yes, their name will be on the mortgage and note as with any lender.
Depends on the state. Some states use attorneys as closing/escrow agents. Otherwise, it will be run through a title and escrow company of the lender's choosing. The lender MAY be interested in financing the repairs if you have enough equity in the property and otherwise qualify. But, if you don't have previous rehab experience, they might be resistant. Another chance to take on a partner!
5. Refinance the home with a traditional lender to pay back initial lender and rehab costs.
Do you qualify for Fannie Mae financing? Otherwise, there are a few private lenders who will loan on already-rented-for-3-6-months single-family properties.
6. Begin collecting rent payments that goes toward PITI. Goal of $200+ in positive cash flow.
