I recently finished my first solo property. It’s been on the market just over a month and I had one potential buyer who terminated the contract. It’s time for me to use my back up plan of making this property into a rental. I’ve called some lenders that I found using the BiggerPockets website, I’m still not entirely sure which one would be the best to finance this property. It’s a small three bedroom one bath in the New River area in Jacksonville￼￼. This property has awesome rental potential, I’ve had several people stop and ask while I was still renovating the property when it was going to be available for rent. Since this property is become a rental property I will need to refinance it and use the cash out money towards another property. ￼With all that being said are there any rental lenders for beginners that anyone would recommend for someone who’s credit is fair, has no extra money to bring to the table, and is looking for a higher cash out allowance? ￼￼
Thank you in advance,
@Jenna Bamlet Hi, congrats on finishing the house! It would be helpful to have some $ #'s. Mainly, what is the approximate retail value. So, if its over ~$85K you can probably do a loan with a traditional bank, Freddie/Fanny loan, and that would be the lowest rate since they are crazy low now. A low rate is what you want if you are going to hold it. I do think they would prefer to have a tenant in there with a lease because that will show some cash flow and may be a big determinant factor in what they will lend you. It sounds like you paid all cash for the house and the rehab is that correct? BTW: The reason I ask about the value is that many banks won't deal with mortgages that are below $60K. I would advise finding a local mortgage broker, they have ties to multiple banks and can be very helpful. They are motivated to get you a loan because they get paid by the banks. Ask them if it would be better rented first.
@Jenna Bamlet - I would aim for a traditional loan if possible (@Christian Hansen 's advice is spot on). You can try some local credit unions and brokers. You'll have the best luck if they are under a lease, because they can count a portion of the rent as income. They will all likely have similar LTV numbers. Make sure the property has seasoned (typically 6 months) so they loan on LTV and not LTC (loan to cost). If you want a higher LTV for your cash-out refi, you'll have to make it your primarly residence.
Jenna, I agree with the 2 other comments posted - local or regional lending options are the best (whether the property is deeded in your name OR an entity (LLC), as they may be more lenient on leverage and lower on rates/fees. However, do not be surprised if they ask (or conduct research to discover) if the property has been listed for sale in the last 60-180 days. Many lenders seek this info, as they are concerned that if the property has been "listed" for sale within that time period, the borrower, at the last minute, may kill the loan and sell the property - hence all that loan underwriting work done, for no deal completed. If you had it for sale but NOT listed on the MLS, then there is typically not a way of knowing it was up for sale recently (unless its blasted all over the internet by the seller). Good luck.
Hey @Jenna Bamlet -- what's the current value of the property? Do you owe any debt against it-- if so, how much? And, what do you project your credit score range to be?
Depending on your credit score and the property, you could get a cash-out from a rental property lender at 70% - 75% of the property's current value. This would be a 30 yr fixed option as well. Others commented about working with a local bank/credit union, which is a solid route to take. But, if that's not available to you for whatever reason, a non-bank direct lender that specializes in investment properties is the next best thing.
@Jenna Bamlet If you need the cash out before the seasoning period, you can talk to a commercial lender. Rates will be a little higher and amortization periods will be shorter usually, but they should loan based on appraisal value instead of the total cost of the project. Just another route to consider.
Thank you everyone for your responses.
@Christian Hansen I'm not sure I qualify for a traditional loan. I've dove into real estate when covid started shutting everything down. With that I have no proof of funds. The LLC I'm apart of is currently using Do Hard Money as our lender. I've been told that a rental loan is the way to go for this property from one of my partners.
@George Despotopoulos the property hasn't been appraised, but the estimated value is $110,000. The hard money loan is roughly 70k give or take. Rent in the area is around $700 maybe $750.