Financing in Indiana - Buy and Hold Properties

11 Replies

Good Evening Ladies and Gents!

While I need to provide some context, I will attempt to keep brevity in mind, as I know time is our number one commodity here :) 

I just began my investing endeavor earlier this year - I was able to find a private investor who was willing to take a shot on me. I found a foreclosure, put in an offer under my newly created LLC and before I knew it, I was underway. Throughout the course of the rehab I payed my private investor an 18% annualized return every month on his invested capital. Once the project was completed, we found a buyer and I paid him off in full and I pocketed the profits. Despite a few unexpected hiccups throughout the rehab, it went exactly as planned.

I just put in an offer for my next project, with the intentions of using the same private investor to finance the deal. However, this time around, I would love to convert it to a rental as the cap rate would be close to 20% and the LTV to cover the entire project costs would be roughly 70-73%! My question is this, what advice do you have for me regarding pulling the money out and paying off my investor?

I've read forums suggesting HELOCs, Conventional Loans. etc. etc. - I would love to hear some input regarding my exact situation. I would also love to hear if anyone out there in the BP world has any experience with any local banks or credit unions in the Indianapolis market that would be willing to work with me! I've been calling around the last few days with not much luck. Any information is greatly appreciated, I look forward to hearing from you! 


@Christopher Manus I would not use a HELOC. HELOC's are adjustable and rates can only go up and will do so soon. You didn't say what problems you've had with lenders. I would see if you can work with a conventional lender using the deferred financing program. You'd have to do it within 6 months of your purchase or else you'll have to wait a year.

@Mike D'Arrigo Thanks for the quick response and heads up on HELOCs, Mike! I should have clarified, my issue is finding a lender that'll do NOO loans. To be honest, I just started the process a few days ago and have been reaching out to local banks in the area and I have several inquiries out there. I'm sure I'll get a hit before too long! I wanted to get some advice on here to make sure I wasn't spinning my wheels and making sure I was looking in the right areas. I'm starting to focus more on local credit unions, I've heard they tend to accommodate investors a little more than the big chain banks.

Thanks for the advice regarding the deferred financing program, I'll definitely have to look into that! 

@Christopher Manus - even better than Delayed Financing (search for Delayed Financing Exception to read the Fannie Mae rules about that) is getting private money with no points at 75% ARV (which usually covers purchase and at least a good chunk of the rehab) - requires networking at REI groups and SDIRA (self directed IRA) meet ups. Then you can simply do a rate/term refi with many lenders to move into long term financing. If you pay a low purchase price and have a big rehab, hard money can beat Delayed Financing even with the high points/fees if you can't find a private lender who will fund your purchase and rehab at 75% ARV. Most hard money lenders and many private lenders will do 65 or 70% of ARV.

If you don't know investor friendly lenders (local banks or mortgage brokers who work with multiple national or regional lenders who lend to investors), find your local REI groups and start networking with other investors. Find out who they use for financing - some of the local mortgage brokers and mortgage bankers will likely participate in the REI group.

Once you have the property rehabbed and then you get a tenant in it with a year or two year lease, the bank or credit union is more likely to credit some of the rent as income to cover the loan for your DTI ratio. They really want you to be able to make two mortgage payments as if there was no tenant, ever. Having some cash in the credit union or bank that you ask for the loan will help also. Good credit score is always helpful.

Now for the other side. If the first one went so well, and hopefully this one does too, keep flipping.  Whatever you are doing to find properties, its working.  Deals tend to start flowing.  After you get a few rehabs done, you should be able to pay for the next house cash and dont need a loan. Or you could ask for a loan with 50% down for your first rental property. I dont think a credit union would be able to turn you down with 50% down and a tenant with a two year lease and a beautiful rehabbed home. Good Luck and more importantly, have fun!!!

Good Morning Richard and Doug! 

Thank you both for the insightful information! My primary investor uses his SDIRA and I'm pretty certain he'd be willing to go up to a 75% LTV if the deal made sense, which this one does! I ran the numbers as both a flip and a buy-and-hold and they would work for me either way so I'm moving forward with the deal. Worst case scenario, if I cannot lock down financing when the rehab is complete, I'll put it on the market and use the profits as a downpayment for my first rental!

I did just join a local REI group and I'm going to check out a meeting in a couple weeks, can't wait! Thanks again, gentlemen, have a great weekend!

@Christopher Manus You should not have any problem getting conventional financing. Virtually every major bank does investment loans. It's a standard Fannie Mae product. DM me and I will refer you to a very good lender that I work with.

Hi @Christopher Manus

I can see you've already got some great advice from some more seasoned investors than myself but for what it is worth here are my 2 local cents worth.  

I am in Indianapolis and have a HELOC with a big bank. The variable interest rate scared me at first but they showed me over the last 10yrs the rate has not gone above 5%. I am doing the buy rehab rent refi repeat strategy and if all goes accordingly the money should be put back into the HELOC fairly quickly anyway. I have found a local credit union that will refi at 75% ARV and will PM you the details. I found them by doing exactly what Doug suggested above, I got in touch with local investors and asked who they used.

Congratulations on your first success story and good luck with your 2nd!

@Christopher Manus I've been using the "BRRRR" strategy for about 4 years and it works great. I usually end up with zero or even a check back at closing after the refi and paying off my private lender.

Like @Michelle T. mentioned above.  That's the same local credit union I use as well.

@Shawn Holsapple

Thanks for the add, Shawn - I recently listened to your podcast, very informative!

As for your earlier inquiry, I'm looking to buy - I have ~$100,000 worth of private funds earmarked and with yours and Michelle's referral, I believe I now have a lender in place on the backend to refi. 

I just finished the pre-licensing course for my brokerage exam and I plan to leverage the MLS quite a bit after I complete the state exam in a few weeks. However, at the moment, I'm having a difficult time tracking down deals in the Indy market. Per your podcast, I might turn my attention towards HUD and but if you have any wholesale deals available, I'm definitely interested in analyzing them!

I completely spaced I made dinner reservations tomorrow evening but I'm going to try and push it to after 9, I'd really love to attend this meeting and meet everyone. 

FYI - I believe you might have met my boss last week at a CIREIA meeting - Does Marilyn Kleist ring a bell? 

Thanks again, Shawn! 

I just emailed you a few deals & have added you to my mailing list as well.

@Christopher Manus if you're ever in need of another lender with lower rates please let me know.  I have referred lenders to my cash buyers in the past, and I have used a lender myself to close rather than assign.  

I may have a an opportunity that you're interested in.  Also, I encourage you to come to tomorrows Meetup!  You'll get to meet Shawn and I in person, and the pizza and drinks don't hurt either :)

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