Partners going for a loan??

Question

Me and my partner want to do a rehab and wanted to know when applying for a loan do we apply separately or together? Should we go through a bank or the HML route? Also, I spoke with a realtor about finding us a rehab property and he told me that it would be best for us to purchase with cash. Is there a difference between getting pre approved and qualified for a loan? Thanks everyone!!!

David P. · Answer

Hi @Joe  Hernandez  it's important to be set-up correctly so to limit your liability.  When you go for a loan, the property will most likely be in both of your names whereas you may want to consider putting it into an LLC.  This structure is better advised by a real estate attorney, but no matter how much you trust your partner, it could become an issue as you start rehabbing the property and any leans on placed on the property.  At a minimum, you should have a partnership agreement in place to outline financial and duty responsibility.

Now to your specific question is it better to be approved and qualified? Yes that is good, but cash gets the deal completed quickly which is often the key to getting deals.  Some times qualified only means that you and/or your loan will meet the criteria set-forth and does not take into account time for appraisal, inspection, counters etc to be completed and then... underwriting and closing.  Cash deals can often be completed quickly and when trying to find a deal to make money this is what most sellers prefer.

Additionally, when doing conventional loans, lenders may not be able to lend on properties with out a kitchen or that needs extensive work.  This can often kill a deal and some experience sellers may not even go down the path with you if you are trying to get conventional financing.

You may want to talk to a few hard money lenders to try and get money lined up.  They will ensure you can do the deal or they may not even invest in such a rehab due to the high risk associated with this venture.  Being new to the Real Estate game, it is great to have another set of eyes looking at your deal.  It's will be hard to justify the high cost of the money, but the benefits may outweigh the negatives.

Please note, this information is not financial nor legal advice and you should talk to a professional in these fields.

Good luck, and please ensure to VOTE on reply's if you think they have helped.

Hope you have an excellent future!

- Dave