A non-traditional lender that possesses advantages (less stringent requirements, faster), and disadvantages (higher cost of capital) than a traditional lender, such as a bank.
Someone will chime in shortly I'm sure with regards to the traditional refinancing process, and perhaps someone with experience in refinancing sub 100k properties.
Regarding the advantages of each strategy,
With a fix and flip, you may be able to benefit from the large influx of capital when it sells (assuming things go right). However, you will not be building your 'passive' income portfolio.
With a buy fix and hold, you will not experience the large immediate influx of capital that a sale provides, but you can hold the property over the long-term for its cash-flow.
You are going to find that it varies - if you go the conventional route, then the seasoning requirements are going to be more strict.
If you go the alternative route, e.g. HML, then there are lenders with no seasoning requirements (be aware that their LTV's might be restricted in this case, and the rates/pts. will be higher than if you go the traditional route).
One thing that I would warn you about is the difficulty in refinancing low-value properties. You may be able to find a lender that is willing to do the take-out, but at the ARV you are likely looking at (sub-100k), those lenders become much, much more difficult to find.
I think that you are very smart in the way you are going about this by inquiring about a take-out lender before you move forward with purchasing the property for rehab.
Perhaps someone else can chime in with regards to refinancing seasoning requirements when going the traditional financing route.
St. Louis, MO · Member since 2019 · 52 posts · 7 votes
6y
@Michael Kinsella any information is helpful! Can you elaborate on what LTV and HML mean exactly? I didnt know there was a non traditional way to refi haha
Completely green here. Listened to about the first 90 episodes of the BPP and done a little independent research.
I'd like to start building my passive income portfolio, but maybe a simple buy and sell may be better to start?
A non-traditional lender that possesses advantages (less stringent requirements, faster), and disadvantages (higher cost of capital) than a traditional lender, such as a bank.
Someone will chime in shortly I'm sure with regards to the traditional refinancing process, and perhaps someone with experience in refinancing sub 100k properties.
Regarding the advantages of each strategy,
With a fix and flip, you may be able to benefit from the large influx of capital when it sells (assuming things go right). However, you will not be building your 'passive' income portfolio.
With a buy fix and hold, you will not experience the large immediate influx of capital that a sale provides, but you can hold the property over the long-term for its cash-flow.
St. Louis, MO · Member since 2019 · 52 posts · 7 votes
6y
@Michael Kinsella ok makes sense. Yes I planned on doing an HML for the initial costs, just never heard that acronym before Haha.
That's essentially why I'm inquiring about a refi to pay that back. I would guess they have other payment options available potentially as well? A friend that builds houses for a living actually gave me her lenders number. So I think I potentially have my foot in the door.
The property is gutted on the inside, but doesn't look half bad on the exterior.
Realistically I'm unsure about it all, but it seems like as good of an opportunity as any to start my REI career.
I'm hoping to establish a good relationship with this lender and start making moves deal after deal.
Rental Property Investor · Baltimore, MD · Member since 2019 · 67 posts · 4 votes
6y
@Kyle Swarts i did the same in Baltimore. Purchased for 14000+35000 rehab. I am assuming i will have a hard time refinancing. The majority of the surrounding properties go 25000-60000. There is a renovated one identical to mine literally around the block that went for 127000. I am banking on Baltimore. It is a rough area however i am from Brooklyn NY. I grew up in a brownstone that my father purchased for 30k now worth 1.5 mil. There were abandons all over Bedford Stuyvesant. 75% of my block was abandoned. When everybody was losing there house during the crack era my father bought a house there. I purchased in Baltimore in Feb 2019. Been taking my time. Interesting enough Donald Trump called out Baltimore politicians for the conditions in Baltimore. Since then the Feds are in the process of assembling a task force in south west Baltimore to clean up the drugs and guns. This has me optimistic. For now my first choice is to rent to students and if that is unsuccessful i will go section 8. Looking to make 2100 off of 2 units. 4 bedroom apt and 1 bedroom basement apt to long term tennants. Looking to make 3900 to students. 6 rooms basement included. 1 share livingroom. Master suite has own 3/4 bath. Each room comes with wifi, small refrigerator, a bed, dresser and medicine cabinet. House include laundry room and shared kitchen. Any insight is appreciated especially if you took the time to read this long post.
St. Louis, MO · Member since 2019 · 52 posts · 7 votes
6y
@Joseph Brown how did you finance your property? Man, if it's going for 127 around the block, definitely smart to rent IMO.
I hadn't even thought of renting to section 8, not a bad idea. I think as long as you're cash flowing something and can keep it paying off w.e obligations you have on it, hold that sucker.
Rental Property Investor · Baltimore, MD · Member since 2019 · 67 posts · 4 votes
6y
@Kyle Swarts after 6 months u should be able to refi no problem. I hope that property for 127000 helps my comps. Most would say it wont being that homes in my immediate area are going for much less.
Lender · Miami, FL · Member since 2012 · 8 posts · 1 vote
6y
I have seen 3 months deed seasoning for around 50% LTV, we do 1 year @ 75% LTV. The previous post is very true that not only will the deed seasoning be an issue but it will be hard to find lenders who will do small loan amounts and if you do it will be expensive.
Aviation – Charter Sales Director · Encinitas, CA · Member since 2015 · 21 posts · 8 votes
6y
Hi all -
Don't want to hijack the thread, but felt like I'm in a similar boat. I have one property, paid $160 w/ $40 down, then remodeled for another $15, brought rents up 40% to the 1% rule. Comps are prob close to $225-$240. Was planning to make another purchase this year and hoping to use my 401k but self directed or even loans are not available. I don't have enough in Savings to pull another for 1 yr+, but itching to build my portfolio.
Should I refi the existing property (how long do you need to 'season' at the new rents?) What is typical refi closing cost?
Any other creative financing you would recommend? Look for owner finance, HML, partner? I have a potential partner that doesn't have much to invest but is very handy so I'm interested in doing some sweat equity with him - only prob is I don't have the $$$ part :)
Don't want to hijack the thread, but felt like I'm in a similar boat. I have one property, paid $160 w/ $40 down, then remodeled for another $15, brought rents up 40% to the 1% rule. Comps are prob close to $225-$240. Was planning to make another purchase this year and hoping to use my 401k but self directed or even loans are not available. I don't have enough in Savings to pull another for 1 yr+, but itching to build my portfolio.
Should I refi the existing property (how long do you need to 'season' at the new rents?) What is typical refi closing cost?
Any other creative financing you would recommend? Look for owner finance, HML, partner? I have a potential partner that doesn't have much to invest but is very handy so I'm interested in doing some sweat equity with him - only prob is I don't have the $$$ part :)
Any advise??
From my experience, I think you’ll get more responses if you start your own thread. I know it’s somewhat counterintuitive because the issues are similar but I don’t see it play out that way.