Hello Bigger Pockets community.
I am under contract for my first property, however I have yet to finalize a loan. The recent changes that have been implied on banks have made me a bit hesitant and I am not sure what would my best option be.
Here are the details of the project.
Purchase price 107,500
Est. Rehab 30,000
Available capital for project: $30,000
I've got good credit score, but am self employed and am unable to get a direct loan from a bank under my name. I am thinking to co-finance with a family member who's got a stable job and good W2, so I know they are good to get a loan under their name, but I'm thinking maybe there is a better way for my to finance this other than thru traditional Fannie Mae route.
Please help, all the best,
I would recommend looking into using a Hard Money Lender just make sure your ARV and rehab costs are as accurate as they can be (check other investors in the area, contractors, and investor-friendly realtors on the numbers).
Since this is your first rental property, I would actually stay away from using a family member just yet becasue if the deal doesn't work, you may end up losing that relationship forever. Especially if they have never done REI in the past. But if they know what is going on, have the accurate information, and you are using a less-risky strategy, by all means use your relative.
What's nice about using a Hard Money Lender is if the deal falls through, it will just affect you. However, using Private Money or other people's money, if the deal falls through, it affects all involved.
Again, just make sure your ARV and rehab is as accurate as possible, as refiancing @ 75% for a $180k property will get you about $135k which will only leave about $2.5k in the property, which is a great BRRRR.
Hope this helps!
I would echo Caleb's suggestion. Hard money loan would be ideal for your case. They don't require W2 income proof. As long as the deal makes sense and there is profit, you are qualified. Currently interest rate for first time flippers is around 10%. With the interest only payment option and no prepayment penalty, you actually will not pay too much interest if you can finish up the project 3-6 months.
Usually for the first timer using hard money you see 80%-85% of purchase with the full rehab.
Rate above 10% with a few points and your on your way!
Close time is quick usually under 3 weeks.
Hi @Sebastian Heretyk ,
As others have mentioned, hard money is certainly an option in this case.
You can expect to pay a higher cost of capital, i.e. interest rate, points, and fees than you would with a bank, but you can also sometimes get the benefit of higher leverage, faster closing times, and easier draw processes.
Best of luck!
Yes, hard money is a good option here, but know your numbers are very tight on this one. If you're buying the property for 107K and putting 30K into it, that puts you at 137K. If the ARV is 180, you're already at 76% without carrying costs, closing costs or hiccups not to mention the money out of pocket for the purchase.
At 107K, your down payment will be 21,400 making your cash to close around 28K, so you'll be at the end of cash (30K) before you get started. Also not, most HML's require some kind of reserve, usually around 10%. Those back of the napkin numbers are at 80% of the acquisition with 100% of the renovation paid out in draws. Remember though, you've got to do the work before you get draws and you've got to come out of pocket sometimes while you're waiting for the draw. Not saying this isn't possible, it is, but I am saying you're very tight on your numbers and with the cost of wood these days, you have to be very very careful with your projections.
Best of luck