Please share any ideas you have to help with the problem below:
I have found a retired couple who own, free and clear, a second house in Houston, Texas they would like to use as a rental property. The house needs a rehab that would cost around 20k. They do not have the funds and the bank will not loan on an unoccupied home that I am aware. The house's ARV is 90k and they own it free and clear. There is a lot of equity in the home. Is there a creative way for them to get financing or a private lender willing to loan that amount of money and get first lien position?
Thanks for your support and help.
I think you just need to find a different bank. Your best best would be to find a portfolio lender who will be a lot more lenient with their lending. You can find a portfolio lendering by either asking other members of BP in your local area if they know of any, or try calling some of the smaller banks in town and just ask them if they are. Good luck!
Lenders will absolutely lend on a non-owner occupied property. They just won't lend at the same LTV ratios. However, since the property is paid for, that really shouldn't be a problem as a $20k loan would only represent 22% of the ARV.
I would stay away from the larger, high-volume originators (Chase, Citi, Wells, BofA, etc.), just because they can be pains in the rear end. Find a smaller, local bank or CU. They are easier to deal with and more personable, which will play better to the demographic you're dealing with. (You might want to consider Frost. They are larger, but regional, and focus on individual attention.)
I would also borrow at least $30k, if you believe the rehab will cost $20k, since it doesn't sound like this couple has the reserves to absorb an overage. If there is money left over, they can turn around and immediately pay down principal.
With as much equity...all equity...as they have in this property, the only issues would be...
- The house isn't currently rented, so you can't use the rental income to cover the loan. Therefore, the couple would need to be able to qualify for the monthly payment on the loan, without support from rental income.
- The property will need to be able to pass inspection for underwriting. Since we're talking about $20k on a $90k property, it sounds like it may be in rough condition, so that's something worth checking into.
I'll give you the 20k if you pay me enough...BUT:
Think through this with me:
20k buys a little lipstick. That's all - seriously. You go through 2ok in a blink when doing a remodel. So, in that you are saying this is all it needs, I, as someone who's been around this stuff for years, immediately formulate an opinion that you know very little about what's involved... There is, therefore, a lack of confidence...
People don't lend money to projects. People lend to people. Follow me, Andrea? I don't mean to be stand offish, though @Hattie Dizmond might tell you it's in my nature to be, but money is not what you need now :)
@Ben Leybovich is not standoffish. I find him very personable, but that could be a result of my natural affinity for sarcasm!
Seriously, Ben is right. $20k doesn't buy a lot right now. And, as I said, it represents almost 25% of the value of the property, so I expect the work required is more than just lipstick. You should get a quote. I just finished a deal on a property with an ARV of $135k. My initial estimate was $25k for the rehab. The contractor's bid came in at $28.5k. (I was very happy with myself!) Then, we decided to expand the scope slightly and take care of some things up front, so we could defer future maintenance as far as possible. The final cost was $32.8k. That was mostly cosmetic and optional work.
Get a contractor's quote, before anyone gets a loan.
Thank everyone for your input.
They were able to get a loan from a bank. Feeling very confident!!! @Ben Leybovich
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