Real Estate Agent · Milwaukee, WI · Member since 2015 · 19 posts · 4 votes
Ok, long story short. A seller lead came to us (business partner and I) 2 days before their house was to go on Sheriff's Sale. We negotiated with them that we would pay the arrears and then purchase the house from them for $150,000. The current market value of the property is $230,000-$250,000. I would like to finance it and use it as a rental property. Aside from a hard money loan to purchase and then a conventional refinance... is there any way to approach a lender with this? I know you can't do a gift of equity for an investment property according to the couple lenders I've talked to already. We are also working on getting HELOC's in place to fund this deal and then do a conventional refinance. I just didn't know if anyone on here had done something similar or had any advice to share. It's backward from how I would have normally done it with more time on my side. This was all dropped in my lap so quickly I sort of slapped it all together more to save the house and seller's from getting kicked to the curb. Thanks!
Banker · Minneapolis, MN · Member since 2017 · 257 posts · 143 votes
4y
Hard money would be your best option for the purchase and then find a more traditional/DSCR for the permanent financing. You'll pay more in the short term but it will allow you get secure the property.
Real Estate Investor and Instructor · Gilbert, AZ · Member since 2010 · 303 posts · 332 votes
4y
As John has already pointed out, your best bet is a HML. After 6 months you should be able to get conventional financing and a cash out refi around 75% (based on appraised value). All the conventional lenders I know will only do 75% of purchase price (in your case 150K) if owned for less than 6 months. I do a lot of deals in Wisconsin, Waterstone Bank is very investor friendly but they still won't do cash out refis based on appraised value unless you've owned it at least 6 months. Good luck!
Banker · Minneapolis, MN · Member since 2017 · 257 posts · 143 votes
4y
Hard money would be your best option for the purchase and then find a more traditional/DSCR for the permanent financing. You'll pay more in the short term but it will allow you get secure the property.
Private lending and hard money are the tools of the REI trade for a reason; certainty of execution and efficiency in opportunistic situations. Your deal parameters are ideally suited for using HML or a private lender, since your objective is short term, and your exit financing is a clear and effective path.
If you decide to go this route, I would be happy to fund the deal for you and if desired, we can also arrange the conventional or DSCR refinance to exit the interim loan.
Feel free to reach out if you would like to discuss further.
John
John, thank you. That is exactly what I was assuming as well. I'll send you a private message and we can discuss further. Thanks!
As John has already pointed out, your best bet is a HML. After 6 months you should be able to get conventional financing and a cash out refi around 75% (based on appraised value). All the conventional lenders I know will only do 75% of purchase price (in your case 150K) if owned for less than 6 months. I do a lot of deals in Wisconsin, Waterstone Bank is very investor friendly but they still won't do cash out refis based on appraised value unless you've owned it at least 6 months. Good luck!
Thanks Marty, I have heard Waterstone was an investor friendly bank. I appreciate the insight into the seasoning. I have been contacting quite a few different lenders as well who can confirm that. Great information.
Sounds like you all are doing great work helping someone avoid the foreclosure process.
I dont know if you tried this already but have you called the lender and asked if you could assume the current mortgage?
This is not always likely but it might net you the house and title without all of the headaches while requiring less funds.
Otherwise, i would agree with the others that HML would be best if you cant make owner occupant work.
Hope this helps and good luck!
Thanks Paul, that was the first thing that I did actually. They weren't interested in allowing us to assume the mortgage unfortunately. That would have made this whole thing a lot easier. We are going to try and use a HELOC from another property to cash purchase the property and then we can refi later. If that doesn't work we will explore the hard money options out there. I appreciate your reply!
Hard money would be your best option for the purchase and then find a more traditional/DSCR for the permanent financing. You'll pay more in the short term but it will allow you get secure the property.
Awesome, thanks Brandon! I didn't even consider a DSCR for a SFR but now that John and you mentioned it that is a fun option to explore once everything is in place.
Lender · Patterson, NY · Member since 2017 · 488 posts · 186 votes
4y
What are rentals going for in the area? For my thought you'll need to know this now.
Payoff the arrears, deal with them to pay their mortgage by agreement, have them leave before the payoff, rent out the property using the rental income to do so if it covers the operating costs, etc. Get them to leave however you do that best. Motivation on their end is always the key element
There are many things in play here but it helps your cash flow while you keep the property.