Why is Hard Money so hard to find
I am new to this, but I have been studying and researching investment property for several months now. I am looking at buying one HUD somewhere between 15 and 30K, more around the lines of 25K. These are nice homes and in a 'not so bad' area, that will require very little rehab. I just can't seem to find anyone willing to loan me so little money. My credit score is around 620 and I do have more then 6 months of reserve cash handy.
Other then going to a family member or private investor, does anyone have any other idea's how to get started on my first house?
Thanks
The only thing that I can guess is that your deals are NOT as good as you think, and that you're looking for the HML to put up too high a %. In my experience most newbies fall into this mindset.
I get contacted several times a week to make HMLs to investors in the two pretty good size cities near me. I always tell them to email me the "pro forma" numbers; acquisition cost, rehab cost, ARV and expected hold time. Now that everyone has a digital camera (even ME!) I ask for some pictures too.
Invariably I can tell, just from the pictures, that they've probably underestimated the rehab costs (I've been rehabbing for 25+ years and I still underestimate too), and probably overestimated the ARV. In addition they are looking for too high an LTV from me! Most HMLs will only lend 65% so you need cash reserves and/or a NON LIENABLE source of other borrowed funds, ie; HD credit card.
When I see an ARV or $55K, an acquisition cost of $20K and a (newbie estimated) materials cost of $8K, I see a very marginal deal. Labor is always going to be 60% +/- of the total cost so the rehab cost is pushing $24K.
Now this "can't miss" deal has an ARV of $44K against a FMV of $55K. That's too thin if you're paying cash! If the newbie is going to be doing a lot of the work himself I need to KNOW that he knows what he's doing and has the TIME to accomplish it. Otherwise the holding cost is going up and the newbies interest level is going down.
The ONLY way I would consider a thin deal is if it's REAL CLOSE (10 miles) to my house and I'm pretty sure the newbie can get some of the "scut work" done before I have to foreclose on him.
Are you sure on your numbers and do you have the cash to put into the downstroke and the rehab?
all cash
Thanks for the reply All Cash.
Actually I have worked construction for several years, so I have a pretty firm handle of what it cost to rehab a house. My wife also does interior design. I lived in this neighbor for 4 years. I purchased my first home for 42k and did minor improvements and then sold it 4 years later for 64K. Nothing great, but I was happy to finally get out of the city. This was around 5 years ago. I know the homes and the neighborhood. So I am not taking anything for granted that I can see. As an example the house currently is being taxed at a 54K property appraisal and in my county, the tax appraisal are always low compared what that actual appraisal will come in at. So saying 50K was low balling it.
I don't think that I am making any huge assumption here about how much I could turn this house at. If I am missing something please tell me.
Thanks
So have you actually taken the deal to a hard money lender? If you are buying it right, and you have some decent sense about what you are doing, a local hard money lender will most likely loan on it no matter what your credit is. You might want to find a local real estate investment club to network with some local hard money lenders.
It sounds like you've got the expertise so if you're not getting approved I'm guessing it's because the LTV is too high. Generally 65% is all a HML is going to lend.
all cash
Problem so far has been either my credit score, the amount that is needed is too low or one said they will only loan to a business in Ohio. I was looking at local clubs and they all charge a fee to sign up. That seems a little hoaky to me. It can't be a LTV issue, since none of them have even asked for the numbers yet.
Thanks again for the advice. I will just keep up the research.
Originally posted by "TC":
PI was looking at local clubs and they all charge a fee to sign up. That seems a little hoaky to me.
What's the problem with charging a fee? Our local REI club is wonderful, but it has expenses that have to be paid -- speakers, a place to meet, a classroom for courses, tours of rehab houses, etc... What kind of club could you have if nobody paid to belong? A couple of people getting together for lunch at McDonald's, maybe?
Theres not a problem. I thought it seemed a little strange to request your members to pay a fee when without your members networking there wouldn't be a club. If this is the standard, then it is. I pay a hunt club fee every year and for that I get to hunt and fish on the property all year long and we have guest speakers come in too. So I guess the concept is about the same.
Thanks for the reply
There are several HML in OH that may be able to get your loan done with that score. The loan loan amount is an issue but maybe you could look at doing 2 small deals so and blanket the loan to meet the minimum.
I never thought about combining, although now with this, then I am looking at trying to complete 2 properties at the same time, while still holding a full time job and school. Can you provide some names of contacts in Ohio? I did get a call from one in FL. late Friday, and it sounds as though it could be a good lead.
Thank you for the advice.
Tom
If you want a loan for such a property and your credit is 620 (middle score) you will need to put down 10% or more to get financing
If you can prove your income (verify income), then you may be able to get close to 100% financing. If you have had lates in your mortgage (assuming you own a home now) then it becomes more difficult.
Originally posted by "TC":
I never thought about combining, although now with this, then I am looking at trying to complete 2 properties at the same time, while still holding a full time job and school. Can you provide some names of contacts in Ohio? I did get a call from one in FL. late Friday, and it sounds as though it could be a good lead.Thank you for the advice.
Tom
Tom,
At this point you appear to have all the basics. It will come down to the specific deal and the specific numbers.
Most HML are niche lenders so they operate in a specific geography. Certain states or certain communities within a city. It varies a lot.
I have put together a number of HML loans in SW OH. One big issue for some of the deals is the size of the loan and the property value. When you get down to the smaller numbers there can be issues if the lender has to foreclose as the legal costs do not go down with a small deal.
What city are we talking about for the above properties?
John Corey
I totally agree with REI. Likely, it has alot to do with the size of the deal and the LTV.
Yes, I agree that size matters. This is an old thread. Since then I have gone directly to my local bank and worked a deal. I am still, like always in need of finanicing; however, I am working with a few leads trying to build a relationship in hopes of finding someone who has the cash to give me what I need when I find these deals.
Thanks