I have heard that I will not be able to get a loan for under 50K on investment properties in MD. Can anyone give me some insight on why that is, even that the properties have good cash flow?
@Joe Giusto II many banks don't want to do smaller loans as it ends up being about the same amount of work for an under $50k loan as a larger loan like a $200,000 loan for example .
You might want to try smaller local banks and credit unions in the area where the property is located .
Private money or crowdfunding loans might be another option but interest rate will be a lot higher than a conventional mortgage of course .
Line of credit on another property might be an option too if you own a property with equity .
@Joseph M. is right on the money. Credit unions are a great place to find these smaller loans depending on your credit score, and they offer great rates and options.
Hard Money Lenders also tend to have minimums in the 75k-100k range because of the highest risk and lower benefit to the lender. That being said, there are definitely some out there that may do smaller properties, but they come at a cost with origination and broker points, closing costs, lenders fees, etc.
That being said, if you're not eligible for a bank loan from your FICO, finding a reputable local HML in your area that will do the $50k, and you have the option of refinancing later when you are bank loan eligible.
There are small banks who can lend on small loan amount. Whether its small loan amount or higher loan amount, it has same kind of work involve in that transaction and some time cost is higher to fund that loan. That's the reason some lenders or banks has restriction for certain loan amount.
Joe I would just keep calling banks till you get someone to work with you on the lower loans. Also If you have the cash on hand you might be able to loan money against a cd you put with the bank. I recently found someone who will lock me in 2 points over what their 5 year cd is paying. Just keep searching and don't mark out talking to the commercial department.
@Brandon Turner If I had the cash on hand, I would not need the loan. What are the advantages of locking up the cash in the bank and paying 2% for your own money? I am making the assumption here that they would not let you draw it out until the loan has been satisfied.
Real estate loans below $50k are right up the alley for many private money lenders. They fit nicely in their Self Directed Roth IRA.
If you have as good a deal as you say, the numbers will speak for themselves and make the loan attractive to private money lenders. I highly recommend checking out your local REIA or any other networking groups to start fishing for private money.
Joe I am new to this but I really didn't like the standard purchase on my first property. Buying these smaller priced properties your closing costs can run up to 10% of your purchase price. Think from here out I want to use a combination of the CD secured loan and a HELOC and then refinance later so I can possibly bundle the closing costs when my equity situation would be bettter.. But you are correct in that the money would be tied up but it is tax deductible and you would be locked into the rate the length of the cd. You only pay interest only payments but you have the flexibility to make higher payments and there are no prepayment penalties.