General questions - conventional and private lending

7 Replies

Hello everyone! I'm still pretty new as a real estate investor and I had some basic finance questions. I'm also open to any and all advice! I currently own one rental and I'm looking to expand. I tried reading through a few pages of posts and couldn't find an answer to my situation. I've come across a pretty good foreclosure deal on a fourplex and the numbers look very good. Now I'm getting to the point where I'm trying to see if/how I might finance it. First, are there ever scenarios where a bank will finance a foreclosure with 20% down? The property has been vandalized but all of it is surface stuff. Mostly just need to replace drywall and paint, new carpet and some minor bathroom repairs. I'm concerned the appraisal wouldn't come in high enough though. The other part of this is if I had a private lender loan me the down payment, can I do that? Does that impact the likelihood of getting the main conventional loan? The idea would to BRRRR this property to pull out the down payment and some of the rehab costs. If I do a private loan, would that be an unsecured loan or is there a way after the property is purchased to tie it to this loan so they have extra security? Any and all advice is appreciated! Josiah Collins

Have you considered a 203K rehab loan? The appraised value would be off of the finished product after repairs are completed by the contractor.

I thought those were part of the FHA loan program so wouldn't it need to be owner occupied to qualify for that?

I spoke with a loan officer that I worked with before and wanted to relay some additional information to see if that generates different advice. They told me that I should be able to do the normal 20% down, but since I don't have that amount and was planning to borrow that for a family member I would have to have that money in my account for two months before they could count that? Otherwise she said I could actually have that second person on the loan. However, I don't think that they would necessarily want to be on a loan. Is this a standard practice? How aren't people doing it when I see people talking about using a hard money loan or private lending for their down payment? Am I missing something? Thanks!

Originally posted by @Josiah Collins :

I spoke with a loan officer that I worked with before and wanted to relay some additional information to see if that generates different advice. They told me that I should be able to do the normal 20% down, but since I don't have that amount and was planning to borrow that for a family member I would have to have that money in my account for two months before they could count that? Otherwise she said I could actually have that second person on the loan. However, I don't think that they would necessarily want to be on a loan. Is this a standard practice? How aren't people doing it when I see people talking about using a hard money loan or private lending for their down payment? Am I missing something? Thanks!

Yes that's correct and most people aren't using HML's for down payments they are using them for value add deals where they can force immediate equity through rehabbing and then refinance out into a better loan program.

That's actually what I would be doing. Would a HML tend to have the same restriction about a family member loaning me the down payment and the amount of time I had that money? Thanks!

@Josiah Collins

For my lender, we would require the source of the money to be a partner on the deal. My advice to you is to create an LLC with the relative as a capital partner in the LLC. Not only will that satisfy most lenders, its sound business practice in case things go south.

Howdy @Josiah Collins

You can use a Hard or Private Money Lender to acquire the property. To be successful with using the BRRRR strategy you need to make sure your numbers are right from the start. Have a good estimate on the ARV so when your refinance the deal the new appraisal should be close. The refi must at least cover the original loan, and as much of the Rehab, holding costs, and closing costs as possible. This is while leaving 25 - 30% in the property in the form of equity. Not sure you can get 80% LTV on a Fourplex. 70% - 75% is the best I have found for the refinance loan.

What are your numbers?

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