Refinancing Woes for low cost properties

Memphis, Tennessee
Private Lending & Conventional Mortgage Advice
4yFollow

Refinancing Woes for low cost properties

Alberto Leonard
New to Real Estate · Bergenfield, NJ · Member since 2021 · 31 posts · 23 votes

I've listened to several podcasts, Biggerpockets and others concerning the BRRRR method. It's straightforward as long as your buy right. You can then rehab, rent, etc... What no one seems to shed a light on is how difficult it is to find refinancing for loan amounts under 100K. It seems many lenders pass on you or if you are lucky offer an extremely high interest rate no matter how financially sound you are on paper. My 1st rental was purchased with a conventional 30yr loan, not too much of an issue there, however I utilized a hard money lender for the purchase/rehab for my 2nd investment and it seems many lenders want nothing to do with you. Perhaps I missed it in one of the podcasts but nothing has come across expressing this type of issue. Its obvious now that the best play would have been to pay cash for the property, rehab then refinance or HELOC but its too late now.. Still on the hunt for a lender that can make it work or would even consider it. Luckily I have some time since I started the process early. Has or is anyone experiencing the same issue?

5Reply
45 views

Most Popular Reply

Alex BekezaBusiness Member
Lender · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes
4y

@Alberto Leonard There are commercial products out there that will go down to $75,000 (75% cash out on a 30 year fixed) as long as the property appraises for $100k + but the market for properties valued below $100k is much, much tighter. I invest in Saint Louis Missouri so I have a handful of these in the $75k-$90k loan amount range based on the values in South City. Part of my underwriting process is always making sure I can force an ARV above $100k simply for this reason.

[email protected]818-606-8823
Investor Property Loan5306 Reviews
WebsiteView Page
4Reply
See this reply in the discussion

25 Replies

Jump to latestLatest
  • Eric Veronica
    Lender · Cleveland, OH · Member since 2011 · 587 posts · 435 votes
    4y

    @Alberto Leonard  Are you having an issue finding hard money lending under 100k or the conventional refinance loans under 100k?

    0Reply
  • Alberto Leonard
    OP
    New to Real Estate · Bergenfield, NJ · Member since 2021 · 31 posts · 23 votes
    4y

    @Eric Veronica  Trouble finding a conventional refinance under 100K

    0Reply
  • Eric Veronica
    Lender · Cleveland, OH · Member since 2011 · 587 posts · 435 votes
    4y

    Thanks for clarifying.  Lender minimums are all over the place.  We have no minimums in some states and $40,000 minimums in other states for our conventional loans.  

    2Reply
  • Miranda Holland
    Lender · Macon, GA · Member since 2015 · 191 posts · 59 votes
    4y

    I know what you mean. I'm a broker and the farthest away you get from 100k, the less options you have to refinance.  That's something to think about when you get a cheap deal. It can hurt when it comes to the financing down the line.  

    1Reply
  • Bob ReinhardBusiness Member
    Lender · Patterson, NY · Member since 2017 · 488 posts · 186 votes
    4y
    The reality is that the loan is generally not cost effective to underwrite and process at lower than $100k.
    [email protected]914-861-5501
    0Reply
  • Ann Marie R CoanPro Member
    Member since 2021 · 7 posts · 4 votes
    4y

    I am in the exact same boat. After paying $10,000 on a mentorship and learning all about BRRR. We bought our first two properties with cash from a refi cash out on my home. I go to do the refi part of BRRR and guess what, nobody is touching it. One home was 55K and the other 50K. Nice homes in solid working class neighborhoods in Georgia and Alabama. Now I'm stalled. I have no money it's all tied up. If I find someone who can do a refinance the rates are ridiculous! If you have any success please update it and I will do the same.

    2Reply
  • Dwayne ClarkePro Member
    New to Real Estate · FL · Member since 2021 · 22 posts · 16 votes
    4y

    Good Day All! Similar situation here! Bought at $53K cash in Georgia under a LLC, Redfin says it's worth $75K right now, I have a tenant paying $550/mth Section 8 and I'd like to get some of the cash to upgrade the HVAC, potentially replace the roof (under 10K) and get another property but there are challenges finding a lender. I also like to raise the rent but I'd like to do some touch ups to the property first.

    2Reply
  • Quincy Lockett
    South Holland, IL · Member since 2017 · 374 posts · 432 votes
    4y

    @Alberto Leonard

    I am currently doing a refi/cashout with Navy Federal. The only option they had for me was 84K at 15 years at 7%. I took it because I have over 50K equity but JEEZUS! You have to do what you have to do to get the cash to re-invest. The tenants are paying it anyway.

    1Reply
  • Ann Marie R CoanPro Member
    Member since 2021 · 7 posts · 4 votes
    4y
    Quote from @Bob Reinhard:
    The reality is that the loan is generally not cost effective to underwrite and process at lower than $100k.

    I wish they had mentioned that when I spent $10,000 on a program that told me to find the good deal and then just refinance it. I got the good deals and now I'm stalled. :-( Especially if I want to finance it under the LLC with my partner. I can get a personal loan, but that won't work.

    1Reply
  • Ann Marie R CoanPro Member
    Member since 2021 · 7 posts · 4 votes
    4y
    Quote from @Eric Veronica:

    Thanks for clarifying.  Lender minimums are all over the place.  We have no minimums in some states and $40,000 minimums in other states for our conventional loans.  


     We do look at properties in Alabama can we have your contact information?  You don't handle Georgia?

    0Reply
  • Eric Veronica
    Lender · Cleveland, OH · Member since 2011 · 587 posts · 435 votes
    4y

    Sure ill send you a message

    0Reply
  • Alex BekezaBusiness Member
    Lender · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes
    4y

    @Alberto Leonard There are commercial products out there that will go down to $75,000 (75% cash out on a 30 year fixed) as long as the property appraises for $100k + but the market for properties valued below $100k is much, much tighter. I invest in Saint Louis Missouri so I have a handful of these in the $75k-$90k loan amount range based on the values in South City. Part of my underwriting process is always making sure I can force an ARV above $100k simply for this reason.

    [email protected]818-606-8823
    Investor Property Loan5306 Reviews
    WebsiteView Page
    4Reply
  • Ann Marie R CoanPro Member
    Member since 2021 · 7 posts · 4 votes
    4y

    Yeah, I know that now!  LOL  Lesson learned.  Unfortunately it's too late for me and now I've tied up all my resources in 2 houses.

    1Reply
  • Luther Wilson IIIPro Member
    Real Estate Broker · Kansas City, MO · Member since 2017 · 535 posts · 292 votes
    4y

    That’s definitely a thing with lenders! They say it’s a certain amount they won’t loan below but a bigger part of it has to do with the property location...  A lot of lenders won’t want to fool with it if the location isn’t as good.  It’s usually more work and less pay, in general, for the loan officers - so they don’t really talk about it much.  They don’t necessarily want everyone knowing that they can qualify people with a 580 credit score, either. Plus, the banks consider certain locations and price points too risky for them for reasons that might not be so obvious for newer investors…  You can still get ‘em done but you gotta find the right lender and I hear it’s gonna be more hoops to jump through.  That’s just another reason why location is so important!

    2Reply
  • Dave Skow
    Lender · Seattle, WA · Member since 2014 · 2k+ posts · 899 votes
    4y

    @Alberto Leonard-  let me know if you still need a referal  to loan officers  that  can  assist with loan amts  < 100K  

    1Reply
  • Mike Klarman
    Specialist · NJ · Member since 2022 · 1k+ posts · 649 votes
    4y

    We had a Foreign National client who owned three properties free and cleat in tenn.  Values ranged from 65k - 85k.  The lender I work for wouldn't refi any of them for him and not even as a portfolio loan either.  So I called lots of lenders for them and the complete garbage lenders were quoting me for properties in this price range was ridiculous.  That's why the lender I work for won't do them.  Loan amounts are too small.  Not worth their time.  But even some other lenders rake you over the coals at these lower price ranges because it's business 101.  Revenue - cost = Profit.  Revenue is tiny on these small deals, but the cost of labor for the loan officer to QB the deal for a month for the lender eats away at any profit for the lender.  So most don't do it at all or others try to charge you 3 - 5 points plus closing costs.

    0Reply
  • Caroline Gerardo
    Lender · Washington DC · Member since 2015 · 2k+ posts · 2k+ votes
    4y

    Several issues involved

    . @Ann Marie R Coan please don't pay ten grand for another seminar. Just because a guru says it's manna doesn't mean it's good bread.

    1. HIGH Cost loan laws and Higher Cost cost mortgages are illegal in the United States. There is a max ceiling lenders can charge for 1-4 units. 

    Base rate today for perfect 800 FICO buying owner occupied conventional loan is high. The spread between APR and APOR cannot exceed 6.5

    2. Lenders need to sell their loans to our government to release new funds on their warehouse lines. The GSE's right now don't want to buy investment loans thus the point adds are VERY High as lenders have to keep the loans on their books and service them or sell them at a loss/discount

    3. The cost to generate a conventional loan in all the vendor and regulatory add-ons is between $3000 and $8000. If a lender cost to do a loan is $5000 they cannot legally charge $5000 or ten percent on a fifty thousand dollar loan. They can't recoup it in interest rate either. They are also restricted to not have pre-pays and ARM products and yadda yadda so many rules. If you want to know all the rules by State, call me.

    4. The loan officer makes commission. They make between .25 and .90 depending on where they work .25 on a $50000 loan is $125. Small loans often require more work, many emails and phone calls and 35- 50 hours of work. The hourly pay rate becomes a negative number. 

    5. If the lender mis-quotes on a High Cost loan they have to PAY money out of pocket to close and lose money.

    6. As of the past 60 days 417000 people were laid off in mortgage. Ten Nationwide lenders filed bankruptcy. The lender market is retreating faster than in 2008.

    There are hard money lenders, conventional, and private lenders who do small loans as a courtesy and kindness. Each one have unique rules. Get your information together before you call. Know the numbers on your IRS returns, how much cash in checking account, name on title. Be clear and straight. There are many lenders who will help you close a small loan. 

    @Luther Wilson III it is not about location. It's about making a profit.  A property in a rural location may be harder to find comps and the appraiser might charge more for his her drive time which adds to the ceiling a lender can charge.

    A hard money lender does care about the location as they view the asset heavier than the borrower.

    3Reply
  • Alberto Leonard
    OP
    New to Real Estate · Bergenfield, NJ · Member since 2021 · 31 posts · 23 votes
    4y
    Quote from @Mike Klarman:

    We had a Foreign National client who owned three properties free and cleat in tenn.  Values ranged from 65k - 85k.  The lender I work for wouldn't refi any of them for him and not even as a portfolio loan either.  So I called lots of lenders for them and the complete garbage lenders were quoting me for properties in this price range was ridiculous.  That's why the lender I work for won't do them.  Loan amounts are too small.  Not worth their time.  But even some other lenders rake you over the coals at these lower price ranges because it's business 101.  Revenue - cost = Profit.  Revenue is tiny on these small deals, but the cost of labor for the loan officer to QB the deal for a month for the lender eats away at any profit for the lender.  So most don't do it at all or others try to charge you 3 - 5 points plus closing costs.

    It's such a shame.  I understand that the cost of a small loan won't be as profitable as larger ones (over 100k) but one important factor is missing, client service and loyalt, which in itself can turn into profitabilityfor both sides.  This  current property is a small purchase but as I grow, the size of my purchases will grow as well.  If a lender truly helps me build my business,  I would in turn continue to return for many of my financial needs.  Building a relationship goes a long way in business.  I am still just starting out but have plans to make larger purchases as I gain more experience.   I will be working closely with those who walk the path with me.
    0Reply
  • Mike Klarman
    Specialist · NJ · Member since 2022 · 1k+ posts · 649 votes
    4y

    I hear ya Alberto.  I show my borrowers the best possible service I can.  I answer my phone nights, weekends, and even on vacations.  I’m always accessible.  But when it comes to the suits at big lenders, they are dollar and cents guys.  They take the personal experience out of it.

    0Reply
  • Jessyka Mathews
    Member since 2022 · 10 posts · 15 votes
    4y

     Lending under $100k is always difficult. Small loans under $150k are usually best at a credit union.

    1Reply
  • Ann Marie R CoanPro Member
    Member since 2021 · 7 posts · 4 votes
    4y

    @Caroline Gerardo, it's a mentorship, not a seminar, but trust me lesson learned.  However, the network is almost worth it.   I understand all that you are saying, I was just lamenting the issue that I learned too late.   Trust me I have all my numbers, that's my super power, but as you said finding a lender willing to do the "courtesy" is difficult.  I'm obviously not looking at those properties anymore.  The sad part it is the sweet spot for profit as an investor in that area.   Thank you for your feedback.

    0Reply
  • Ann Marie R CoanPro Member
    Member since 2021 · 7 posts · 4 votes
    4y

    @Jessyka Mathews True and I can get a loan if I want it under me not the LLC, but that's not an option.

    0Reply
  • Mike Klarman
    Specialist · NJ · Member since 2022 · 1k+ posts · 649 votes
    4y

    These low as-is value properties are something I thankfully learned before investing myself.  Enticing because their cheap but so hard to get your money out.  You gotta be willing to just hold it or sell it but cash out refi is so,so hard to find.  I’ve looked for borrowers as a courtesy.  I found a few but the terms are bad.  So bad you gotta be desperate for cash but if in that case, sell.

    That’s usually what I advise people in this predicament to do.  Sell and get in properties in the 100 - 150k range.  Banks will do those all day.

    1Reply
  • Ann Marie R CoanPro Member
    Member since 2021 · 7 posts · 4 votes
    4y

    Alberto, I agree with you. That is what I was saying. Look I realize we made a mistake buying these smaller properties, but we are looking to grow and buy bigger ones later. We are planning on buying 4 properties a year an will also likely refinance when rates go down again, so we'd like to forge a long term partnership. This is where it would be nice if the lending as a courtesy comes in. Obviously HML or PML won't work for a long term mortgage. Oh well, I will keep researching, keep asking and keep savings for a down payment on a bigger property. :-)

    0Reply
  • Mike Klarman
    Specialist · NJ · Member since 2022 · 1k+ posts · 649 votes
    4y

    With that attitude Anne Marie, there’s little doubt in your success.

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free