Growing with financing questions

[Johnnie Fair]

Thanks in advance for your help. I have 2 investment loan options for a property I'm under contract for at $117k "as is" property, the ARV is $175k, and the rent should be $1700-$2k.

Loan 1 is with a local lender 5 percent down, 30 year mortgage with an interest rate at 6.375. I’ve used this product before but it requires an extremely large reserve for all of my properties.  Out of pocket it’ll cost me $13,500 for all of my closing costs.  The only other issue with this product the out of pocket rehab expenses.  This property will cost about $5-$8k to rehab. 

I was considering opening a heloc and using that as my reserves for the deal. This will affect my debt to income though. 

This scenario hurts upfront as it takes longer to recoup the funds to buy the next property with the normal rehab costs (thinking long term). On the other hand the payments are less than $1100 a month. 

loan 2 - is 100 percent financed. Cash to close will be about $11k with an interest rate at 13 percent.  The loan length is 9 months and its interest only.  This loan product will allow me to avoid paying the rehab costs (thinking long term) and closing cost fees.  The goal is to fix up the property over the next 3 weeks to 3 months and refinance into a dscr loan and recoup my initial out of pocket expenses of $11k. This process allows me to buy a deal whenever it’s available versus having to wait 3-4 months to raise the minimum amount of cash reserves. 

[Kenneth Garrett]

@Johnnie Fair

Hi Johnnie,

Option 2 is the strategy I use with my private lender. That loan is usually at 12% covers purchase and rehab. It's the BRRRR method. Rehab it, put a tenant in there and refinance. The quicker it moves along the less you spend. There are closing cost to refinance, but this lets you scale much quicker. You need to own the property in a LLC or other entity for the DSCR loan.