Investor · Charlotte, N.C. · Member since 2018 · 18 posts · 3 votes
Hi All -
I'm looking at buying an off market fixer property in Charlotte for around $150k with an ARV of +$250k with a rehab of around $60k. I'd really like to keep it but would prefer not to tie up capital in purchasing cash and rehabbing using cash.
Can anyone suggest any funding strategies and connections that might be able to help with a rehab loan to best structure this deal?
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
5y
@Daniel Jenkins usually a hard money lender (HML) will lend you about 75% of the ARV. So in this scenario you would receive a loan of $187,500 (or so) from your HML and come out of pocket the rest. Then you would refinance that HML into a long term loan on your REFINANCE step. That's the basic outline of it at least. I hope that makes sense.
Investor · Dallas TX, United States · Member since 2014 · 1k+ posts · 1k+ votes
5y
I dont lend in NC so I cant help you with that part, but why not just get a hard money loan and refi out once you have the property all fixed up nice and pretty? That is pretty simple.
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
5y
@Daniel Jenkins usually a hard money lender (HML) will lend you about 75% of the ARV. So in this scenario you would receive a loan of $187,500 (or so) from your HML and come out of pocket the rest. Then you would refinance that HML into a long term loan on your REFINANCE step. That's the basic outline of it at least. I hope that makes sense.
Lender · Los Angeles, CA · Member since 2017 · 916 posts · 647 votes
5y
@Daniel Jenkins there are fix and flip programs that lend up to 90% purchase, 100% renovation funds but not to exceed 70% ARV. for your case, max loan amount would be 175 (70%of 250). But this would allow you to purchase and renovate the property with little cash down. DM for further questions but this program lends in NC.
I dont lend in NC so I cant help you with that part, but why not just get a hard money loan and refi out once you have the property all fixed up nice and pretty? That is pretty simple.
Excellent! Thanks for the feedback, Josh. Only question is - are the rates and fees on hard money not so high that they wipe out profit on more marginal deals. Feels like the market is so competitive on the buy side that every % makes the difference when underwriting. I have no Idea if this is true, just a theory.
@Daniel Jenkins there are fix and flip programs that lend up to 90% purchase, 100% renovation funds but not to exceed 70% ARV. for your case, max loan amount would be 175 (70%of 250). But this would allow you to purchase and renovate the property with little cash down. DM for further questions but this program lends in NC.
Very helpful! Thanks, Jonathan. Will reach out via DM
@Daniel Jenkins usually a hard money lender (HML) will lend you about 75% of the ARV. So in this scenario you would receive a loan of $187,500 (or so) from your HML and come out of pocket the rest. Then you would refinance that HML into a long term loan on your REFINANCE step. That's the basic outline of it at least. I hope that makes sense.
Perfect sense! Thanks, Andrew. I always wonder about the rates and fees on HML eating up a big chunk of the deaL profit. Also had a bit of a bad experience on the last couple of projects with them taking way longer due to lack of quality subs. Would you build lots of timing contingency into UW to account for timing delays?
Real Estate Agent · Clearwater, FL · Member since 2020 · 19 posts · 16 votes
5y
I have a question to add on to this, since I've been going through similar things. How are you guys refinancing these? Every HML I speak to wants to loan to an entity not an individual which requires you to set up some type of entity. In my case, I went with an LLC. Now that I own a property in an LLC, I can't seem to find a lender who will do a traditional mortgage on it. Are you guys taking out shorter term loans or how are you getting around this?
Investor · Dallas TX, United States · Member since 2014 · 1k+ posts · 1k+ votes
5y
@Daniel Jenkins you are partially correct. Hard money terms will always be more expensive than bank loans and that expense will make some deal turn sour. In that case, you wont be approved by the underwriters. So the hard money lender gets to act as a second set of eyes to evaluate the safety of your deal. In a competitive market, you are going to have people who by property that does not make financial sense. Those people will lose money, do not be one of them. Choosing a property to invest in is not something you want to rush into, just because all of the other fools are doing it. You want to choose your investment property like you choose your spouse, very carefully !!!
Lender · Los Angeles, CA · Member since 2017 · 916 posts · 647 votes
5y
@Saban Becirovic you can't refinance or own a property conventionally in an LLC in the 1-4 unit asset class. What investors do is refinance in non QM/bank statement/ DSCR based loan options. These products prefer LLC vesting and are designed for investors but rates are a point or two higher than conventional mortgages.
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
5y
@Daniel Jenkins ah yes, now these are two separate things to me.
Timing of Rehab - I use my own calculations to this. I don't believe ANYTHING a contractor (or otherwise) tells me about how long a project will take. Now my market might be different than yours....and this formula was created over doing many deals but right now I am using $750 per business day for the amount of time that is needed on a project. Meaning, if my project costs $30k, then $30k divided by $750 = 40. That's 40 BUSINESS days. Not including weekends. Even if your contractor states they will work on weekends....I'm still using $750 per day. So basically 8 weeks or 2 months. Through experience you'll get to know better and better contractors (hopefully) so continue to update your timing so you know how to forecast the time needed on a project. ALL contracts will always have trouble with finding workers. That's just part of it. So calculate it into the deal.
Holding Costs - and yes, ANY cost eats into my profit. The utility bill. Insurance. The payments to the Hard Money lender. The mulch around the tree. Anything and everything. But what alternative do we have? We always want to find the least expensive option....but I cannot sacrifice quality. The cheapest option...usually doesn't end up the cheapest. So work with trustworthy people. And just factor the expenses into the deal. If the costs are higher....then just make a lower offer. It's not your fault that the seller is asking too much. Go to the next deal if the numbers don't work. Just factors in those costs and you'll be good.
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
5y
@Saban Becirovic part of your job as a real estate investor is to find MULTIPLE lenders. Four is a good start. This is a list that will always be changing since some lenders will change their requirements from time to time but I want you to understand that there are 2 main types of loans for investors: “Conventional” and “Portfolio”
Conventional - I'll define these as loans that come from Fannie Mae and Freddie Mac (if you recognize those names). These loans are all 30 year fixed rate loans. They have the lowest rates we can find and since they are 30 year fixed...they allow us to cash flow better...which helps us qualify for other loans later. The draw back to these loans is that they are more paperwork heavy than the other "portfolio" types of loans....but if you have ever received a loan on your primary home, it's likely that you will go through the same type of paperwork here with conventional lending. Fannie/Freddie money = Fannie/Freddie rules. NOT the bank's own money.
Portfolio - I'll define these loans as loans that come from the bank's own "portfolio" of money. Sometimes referred to as "commercial" loans. These loans are a lot more flexible than "conventional" loans. Bank's money = Bank's rules. If they like you, then maybe they will lend to you. But since there is a limit to how much money the bank has access to....their rate will be higher...and usually a shorter term. The most common portfolio style loan in Texas is a 20 year adjustable rate loan. These loans are easier to get but the terms are different.
So the conventional option USUALLY gets us a lower rate but you can certainly get fine rates going the portfolio route. And there are some 30 year fixed rate portfolio lenders out there. So you can get permanent, long term financing in either scenario. With Fannie/Freddie, you would change the title of the property to your name personally at closing. If that is a deal breaker, then just go the portfolio route. Either way, you can certainly get it done. Hope this helps!