too good of a deal? hard money

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too good of a deal? hard money

Terry Sutherland
Homeowner · Dinwiddie, VA · Member since 2015 · 24 posts · 4 votes

I didn't realize there was a such thing as too good of a deal , until I contacted a hard money lender , and a credit union . Basically I found a great deal. House valued at 120,000 (tax assessment) .The home is a 3/2. 1964sqft.  Fully remodeled new cabinets, countertops. Fresh paint beautiful hardwood floors, Vinyl siding etc. Price has dropped several times by 10 to 15,000 . It is now only 25,000. Problem is can't get a hard money loan or conventional loan from credit union. Hard money man says is too low, something must be wrong with it.  I said no , he says not interested.  Credit union says it's not enough of a loan amount to do. Has anyone had this problem with getting funded on a great deal? Am I missing something? 

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
10y

@Terry Sutherland   I love it.. here you are you can't buy it you know it will gone and its probably a smoking deal at 40k but you don't want to pay more than 5k ... cracks me up...

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  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    10y

    Have to agree, if the property has had any exposure at all, has been for sale for a while, multiple price drops, and you can buy for $25k, it isn't worth half of the $120k......perhaps to you, but apparently to no one else.  That said, you'll definitely need some type of private money for a loan.

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  • Terry Sutherland
    OP
    Homeowner · Dinwiddie, VA · Member since 2015 · 24 posts · 4 votes
    10y
    Originally posted by @Wayne Brooks:

    Have to agree, if the property has had any exposure at all, has been for sale for a while, multiple price drops, and you can buy for $25k, it isn't worth half of the $120k......perhaps to you, but apparently to no one else.  That said, you'll definitely need some type of private money for a loan.

     I can see your side and understand that.   Even if was worth half, that would be 60 k, fully remodeled house that can cash flow 600 a month. Houses rent in area for 900 for 3/2. Just seems like a no brainer to me. Idk.

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  • Jeremy Tillotson
    Investor · Fort Wayne, IN · Member since 2014 · 1k+ posts · 515 votes
    10y

    @Terry SutherlandI have heard of the loan being to low to justify the cost of making it. However you say what tax value is but what is market value? Also something smells wrong have you checked title?

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  • Terry Sutherland
    OP
    Homeowner · Dinwiddie, VA · Member since 2015 · 24 posts · 4 votes
    10y
    Originally posted by @Jeremy Tillotson:

    @Terry SutherlandI have heard of the loan being to low to justify the cost of making it. However you say what tax value is but what is market value? Also something smells wrong have you checked title?

     I am new to rei. Thanks for advice. I didn't know that. Market value in area is 85- 125,000 for this size home .I havnt checked title. It's actually on mls through a realtor,  just figured everything would be legit.  Again I am new and have learning to do but have been looking at houses for about a year now and have seen thousands of houses and I feel like I can spot the deals when they show up. 

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  • Charlie Fitzgerald
    Lender · Las Vegas, NV · Member since 2015 · 2k+ posts · 1k+ votes
    10y

    This needs further due diligence.  Until you see the chain of title and confirm ownership I would not give anyone any deposits, earnest money, assignment fees etc.  Something is not adding up...

    1Reply
  • Terry Sutherland
    OP
    Homeowner · Dinwiddie, VA · Member since 2015 · 24 posts · 4 votes
    10y
    Originally posted by @Charlie Fitzgerald:

    This needs further due diligence.  Until you sete the chain of title and confirm ownership I would not give anyone any deposits, earnest money, assignment fees etc.  Something is not adding up...

     Thanks @Charlie will check that out. 

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    10y

    @Terry Sutherland  Occasionally realtors will price substantially under market to create a bidding war.. very common in our market

    say a house is worth 650k.. they will start it at 575k and it will bid up to 700k, feeding frenzy of sorts.

    but if this is for real.. I will buy it.. for 25k and sell it back to you for 40k if you can get a loan on it for that amount its still a great deal... and you can use it as a rental. as long as you can do it in 120 days or less..   hows that !  theres your funding

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  • Logan Drew
    Flipper/Rehabber · Pittsburgh, PA · Member since 2014 · 144 posts · 21 votes
    10y

    Try a different retail bank that you have a relationship with, not a credit union.  Also try a small local bank.  They might bite on it to get you to open other accounts.  Also, ask the listing agent (or your own agent to ask the listing agent) if there has been an appraisal done within the last 12 mos.  Take that appraisal and approach a few mortgage brokers that can do hard money.  You'll find someone that knows someone who wants to make a small loan if the deal is good.

    It is important to note that a tax assessment is not a good gauge of value.  It's actually not a gauge of value at all.  As a matter of fact, tax assessments are rarely within 20% of the market value of a property and can be very outdated (high or low).  Never use assessed value for anything as a rule of thumb...

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  • Terry Sutherland
    OP
    Homeowner · Dinwiddie, VA · Member since 2015 · 24 posts · 4 votes
    10y
    Originally posted by @Jay Hinrichs:

    @Terry Sutherland  Occasionally realtors will price substantially under market to create a bidding war.. very common in our market

    say a house is worth 650k.. they will start it at 575k and it will bid up to 700k, feeding frenzy of sorts.

    but if this is for real.. I will buy it.. for 25k and sell it back to you for 40k if you can get a loan on it for that amount its still a great deal... and you can use it as a rental. as long as you can do it in 120 days or less..   hows that !  theres your funding

     Thanks @jay but no thanks. If I could get a loan I would get it for the 25,000 . Would be willing to pay 5,000 extra to secure home and pay payments until I could get a loan with a 1 yr. Max loan I believe I can secure funding within about 3 months privately but believe house will be gone at this price.

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  • Terry Sutherland
    OP
    Homeowner · Dinwiddie, VA · Member since 2015 · 24 posts · 4 votes
    10y
    Originally posted by @Logan Drew:

    Try a different retail bank that you have a relationship with, not a credit union.  Also try a small local bank.  They might bite on it to get you to open other accounts.  Also, ask the listing agent (or your own agent to ask the listing agent) if there has been an appraisal done within the last 12 mos.  Take that appraisal and approach a few mortgage brokers that can do hard money.  You'll find someone that knows someone who wants to make a small loan if the deal is good.

    It is important to note that a tax assessment is not a good gauge of value.  It's actually not a gauge of value at all.  As a matter of fact, tax assessments are rarely within 20% of the market value of a property and can be very outdated (high or low).  Never use assessed value for anything as a rule of thumb...

     Thanks Logan. Sounds like a good idea. I'll try that.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    10y

    @Terry Sutherland   I love it.. here you are you can't buy it you know it will gone and its probably a smoking deal at 40k but you don't want to pay more than 5k ... cracks me up...

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
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    8Reply
  • Terry Sutherland
    OP
    Homeowner · Dinwiddie, VA · Member since 2015 · 24 posts · 4 votes
    10y
    Originally posted by @Jay Hinrichs:

    @Terry Sutherland   I love it.. here you are you can't buy it you know it will gone and its probably a smoking deal at 40k but you don't want to pay more than 5k ... cracks me up...

    1Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    10y

    @Logan Drew  the ultra small loan is the toughest to make.. think about it for a bank or a lender you can't charge enough to justify the risk of default.

    Ergo why lenders have minimums.. 

    @Terry Sutherland  if its that great of deal grab a bunch of credit cards and pay cash for it.

    then worry about it later... if you quality for a bank loan you should be able to get 3 10k credit cards then cash advance on them all...

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  • Logan Drew
    Flipper/Rehabber · Pittsburgh, PA · Member since 2014 · 144 posts · 21 votes
    10y
    Originally posted by @Jay Hinrichs:

    @Logan Drew  the ultra small loan is the toughest to make.. think about it for a bank or a lender you can't charge enough to justify the risk of default.

    Ergo why lenders have minimums.. 

    @Terry Sutherland  if its that great of deal grab a bunch of credit cards and pay cash for it.

    then worry about it later... if you quality for a bank loan you should be able to get 3 10k credit cards then cash advance on them all...

    I understand what you mean, but a small, local bank could do non-QM/ portfolio financing or even a business-use/ commercial loan and charge the fees they need just like an individual, private investor can. We're not talking about a consumer loan on a primary residence at this point. If the value is what Terry thinks, no investor will have a problem with the size of the loan if they can charge the same fees as they would on a larger loan (and just put a 6 month term on the deal so that they aren't stringing the balance out for a payment that gives them peanuts). I don't know the rules in VA though. Maybe you can't charge the fees there. That said, I would speak to the hard money lender that was mentioned about why they don't like the deal. Go local first to see if there is interest from hard money lenders. If someone brought me a loan request for $20k on a property worth $100k and I could charge $5k in fees, I'd do the loan and hope the person didn't make the payment. That should be resoundingly true for most hard money lenders out there.

    I wholeheartedly agree with you Jay on what you said about credit though... why not just go open an unsecured credit line (or lines/ cards) at the aforementioned credit union or elsewhere and just close using that?  It's worth if for a great deal.  If you can't open the credit, try to get a partner who believes in the deal and can obtain the credit.

    2Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    10y

    @Logan Drew  in our state  and I am NMLS licensed  ( but currently inactive) we can't make loans less than 50k  and charge more than the certain rate above the cost of funds index's  ergo NO one makes loans less than 50k.

    Most small commercial banks really shy from new real estate investors.. Not saying the OP is new or anything.. but I just had that conversation this week about this with my banker.

    The collateral is the last on the list .. First is Character  ( ie the person and experience level) then capacity ( credit and the depth of your financial capability) then the collateral.

    they would though allow the OP to deposit 25k in the bank and then use that as security to loan him the money to buy the home...

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    0Reply
  • Logan Drew
    Flipper/Rehabber · Pittsburgh, PA · Member since 2014 · 144 posts · 21 votes
    10y

    Yes, exactly.  Terry, maybe there is a way to secure the loan with a smaller deposit to said 'local bank'.  Obviously if you have the full amount of the loan to deposit, this is all a non-issue.

    As far as NMLS, you don't need NMLS or even a broker license to originate business-use loans secured by real estate in some states. You can literally ask to have your name put on the HUD and oila, you're paid and 1099'd by the settlement company (or attorney). I have not done this and it was news to me when it was told to me, but I know it's happening. I'd be curious if that is legal or not. It has been brought up to me by several different entities recently that I view as respectable and knowledgeable. Maybe they're trying to make it seem easier than it is though...

    0Reply
  • Charlie Fitzgerald
    Lender · Las Vegas, NV · Member since 2015 · 2k+ posts · 1k+ votes
    10y

    @Logan Drew there is s difference between originating a loan and being s lender as it relates to licensing.  There are lots of folks that ignore the distinctions in this area and many originations are done not in compliance and many loans are made not incompliance.  

    0Reply
  • Logan Drew
    Flipper/Rehabber · Pittsburgh, PA · Member since 2014 · 144 posts · 21 votes
    10y
    Originally posted by @Terry Sutherland:

    I didn't realize there was a such thing as too good of a deal , until I contacted a hard money lender , and a credit union . Basically I found a great deal. House valued at 120,000 (tax assessment) .The home is a 3/2. 1964sqft.  Fully remodeled new cabinets, countertops. Fresh paint beautiful hardwood floors, Vinyl siding etc. Price has dropped several times by 10 to 15,000 . It is now only 25,000. Problem is can't get a hard money loan or conventional loan from credit union. Hard money man says is too low, something must be wrong with it.  I said no , he says not interested.  Credit union says it's not enough of a loan amount to do. Has anyone had this problem with getting funded on a great deal? Am I missing something? 

     Terry!  Call Charlie if he is considering helping you.  I know his company and have spoken to him directly.  I can vouch for the fact that he is for real and is legitimate and a pro.

    0Reply
  • Logan Drew
    Flipper/Rehabber · Pittsburgh, PA · Member since 2014 · 144 posts · 21 votes
    10y
    Originally posted by @Charlie Fitzgerald:

    @Logan Drew there is s difference between originating a loan and being s lender as it relates to licensing.  There are lots of folks that ignore the distinctions in this area and many originations are done not in compliance and many loans are made not incompliance.  

     Of course, that is true and probably downplayed far too much.

    0Reply
  • Logan Drew
    Flipper/Rehabber · Pittsburgh, PA · Member since 2014 · 144 posts · 21 votes
    10y

    Duplicate post.

    0Reply
  • Logan Drew
    Flipper/Rehabber · Pittsburgh, PA · Member since 2014 · 144 posts · 21 votes
    10y

    Duplicate post.

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    10y

    @Logan Drew  Each state has its rules... regarding NMLS..

    Like here in ORegon if you originate a loan in this state on a 1 to 4 unit you need NMLS.

    If your office is in Oregon and you originate a loan in any other state on a 1 to 4 your need NMLS.. that is why I had my NMLS I was a HML in 12 different states but I originated here in Oregon under my Oregon NMLS... but I don't do loans anymore.

    In NV you need NMLS  in CA you need broker license or NMLS I am a CA RE broker Inactive but if I wanted to fire up there I could.

    in WA if its commercial purpose to LLC you do not need any license to do 1 to 4 in that state or any other state were licensing is not required.. there is I think 12 or 17 states that take the same position as Oregon and NV... the rest allow commercial purpose loans without being NMLS licensed..

    @Charlie Fitzgerald  and As Mr. Charlie states this is a very abused industry regarding following the regs.. right up there with wholesaling  IE selling RE without a license  :)

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  • Ronan M.Pro Member
    Rental Property Investor · Chicago, IL · Member since 2015 · 352 posts · 281 votes
    10y

    @Terry Sutherland  I didn't want to suggest it but since @Jay Hinrichs already did I will second it.

    Do some due diligence and if its that good of a deal buy it with a credit card.  It would secure the house for you and give to time to find better long term financing.

    I bought a Northside condo in Chicago for $22K with a credit card (ok...that was in 2011) but since then its been rented for $1000 a month.

    1Reply
  • John Thedford
    Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
    10y

    I would have already tied it up with a short period of time for due diligence. @Jay Hinrichsoffered you the money, wants to make a profit, and you turned him down? If the house is worth even 60K every investor I know would pay 40K. That is a 33% discount!  You make your money in RE when you buy...so if your numbers are correct, no title issues, etc then  this is a money maker.

    2Reply
  • Wilson Churchill
    Madison Heights, MI · Member since 2014 · 472 posts · 132 votes
    10y

    I agree with others saying that you could use credit cards. This is my favorite way to buy a property. Use cards with balance transfer promotions. You should be able to borrow money for 12 - 18 months at 0%, with no fee or a fee of 3 or 4%. The payments may be a little higher than an amortized loan, but the payments will be going to principal, and will still be small payments.

    Once the cards are paid off, you should be able to request an increase on the credit lines.

    0Reply
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