Lending on Purchased Property
Hey Guys. I am running into a slight roadblock here in Baltimore. I recently purchased a property through the city and now am in need of a loan to rehab. Problem we are running into is most hard money lenders only want to lend on acquisition and rehab together. Does anyone have any tips around this where we could get funding for the rehab only?
Credit Cards or Private Money
Lenders will want to lien against the property.
Start talking to local credit unions. They might have a construction loan you can use. If you bought the property with cash you might be able to pull out the equity using a HELOC or home equity loan. Private money is also an option as well.
@Gerald Koonce that really surprises me. I wonder if you are just not talking to the right hard money lenders. If yo already own the property and only need money for repairs this is less money they need to lend and therefore lower risk. Are you talking to national Hard Money Lenders or local lenders?
So far I've spoken to one local lender and a couple national ones. Some national lenders refuse to lend in Baltimore City which is a whole other discussion. Would you recommend seeking out local vs national lenders.
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@Gerald Koonce I would go with local lenders. They know the area and know if the deal makes sense. There is a big difference from a National lender not lending because they generalize the risk of Baltimore and a Local lender that doesn't like that particular deal.
If a local lender won't do it because they don't think it is a good enough deal that should make you think twice. However in your situation that is not much help since you already own the property.
I am curious how you got the city to sell you something if you didn't have proof of funds to renovate it.
It sounds like either (1) you're not talking to the right local lenders or, (2) this isn't a good deal in the first place. I suggest calling a few more local HMLs, if they won't lend you the renovation money then get their candid feedback on why not.
Good luck!
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Quote from @Gerald Koonce:Are there any stipulations in the contract that you have to live in the property? If so, then a hard money loan won't work. If it's an investor loan, then hard money should be an option, but the neighborhood may be a problem. If there are board up's in the neighborhood, significant crime and other environmental factors, it may be a property that lenders will shy away from.
Hey Guys. I am running into a slight roadblock here in Baltimore. I recently purchased a property through the city and now am in need of a loan to rehab. Problem we are running into is most hard money lenders only want to lend on acquisition and rehab together. Does anyone have any tips around this where we could get funding for the rehab only?
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Hit the phones and call every single hard money lender in your area. Someone will do it
what are the numbers
the purchase price
rehab costs
ARV
@Ned Carey We applied for this property over a year ago from the city. At that time we provided proof of funds. We had a line of credit with a lender. However the LOC expired because its good for 6 Months so we are in the process of getting renewed which should be done in about a week.
I do think there is lots of merit to local lenders because they know the area. However the issue we ran across with one lender was the ARV was based on Single Family comps in the area versus 3 family comps. There are not many 3 family comps in the area so they decided to appraise against a single family which made absolutely no sense to me.
@Tarik Turner I am not 100% familiar with delayed purchase. We acquired the property from the city for $14k (dirt cheap). Rehab cost is $230k with contingencies included. Based on the comps I have pulled for a 3 Unit, comps are between $310 - 325k.
If you have experience as a rehab investor, you should be able to get something done if not it might get a bit tricky for you. Shoot me a msg
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Was the property paid off cash or is there debt on it? Issue is they want 1st position lien
@Gerald Koonce it seems like a lot of comments are coming from people who don't understand your situation. I am guessing from you comments that you arranged to buy it from the city a year ago but the actual sale didn't happen because of city delays. In your case a "Delayed Settlement" would not work, that is the problem in the first place.
Perhaps the issue is that the property is not zoned for 3 units. If you are buying it from the city it is probably because it is boarded and vacant. It may have lost it's "Use and Occupancy" permit. Under new zoning rules it may not be allowed to be a three unit. That may be why the lender only wanted to pull single family comps.
Just because it was formerly set up as 3 units does not mean the city will allow it to be continued to be used as a 3 unit. You need to verify this before spending the money to renovate it to 3 units.