Need 100% LTV financing for a residential property

21 Replies

I have started a real estate investment LLC, and I will soon be doing fix and flips. However, my immediate need is personal and urgent.

I want to buy a house in Silver Spring, MD (a suburb of Washington, DC) for $640,000.00. This house needs no rehab. My goal is to sell the house immediately to another local investor, then rent it back from him or her with a 5 year option to buy.

I will fix my purchase price at $700,000.00 when I buy the house back in 5 years. This gives the investor a guaranteed profit of $60,000.00, which would be his or her incentive to buy the property from me.

I have $5,000.00 liquidity and halfway decent credit. I am employed part time. Does anyone know of a hard money lender who will give me a loan to 100% LTV for 6 months?

Thanks in advance for the feedback. Johanna 

Pretty much the only way to get 100% LTV is through a private lender. HML will typically only do 65-70% LTV, but if you find somebody that will give you 100% LTV, let me know!

100% LTV is the great white buffalo.

Just be cautious, if you blast out there, especially on social media, that you are looking for 100% LTV, you will get a many so-called lenders stating that they can give that to you (hard money). Lot of scams. If they require up front fee and approve you almost immediately, they most likely are not legit. Gmail accounts and no references are indicators.

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@Johanna Anderson How much rent are you planning to pay? $60k return over 5 years on $640k is less than a 2% annual return, lousy.  Unless you can pay $4-$6k/mo. in rent, it makes no sense for an investor.

Good advice. I am questioning whether my strategy is realistic at all. 

I think that my time might be better spent looking for an investor who will buy the house I want and rent it to me with a 5 year option to buy, without my buying the house first. Where do you suggest that I look for such a person?

Thanks!

it seems obvious that Bigger Pockets is the place to look. But how should I go about it? 

I only have $2,300.00 a month for rent. 

Do you have someone in the other end as well. You may have trouble having Someone on the other end as there are truly not guarantees of investor getting the $60,000 as if market tanks and you cannot get financing then the person is stuck with the home- or if you no longer can afford the residence. Just trying to give honest feedback that it may not be as easy as it seems unless the house today would be worth well over the $700k

I think that I should buy a less expensive house. I know that I can borrow up to $600,000.00 in transactional funding. I have a house for which I can offer $501,755.00. I know that the ARV of this particular house is between $615,000.00 and $630,000.00.

Would it make sense for an investor to buy this house from me for $503,000.00 and rent it back to me for $2,300.00 a month, with a 5 year option to buy? I'm trying to calculate the likelihood of finding a buyer, if I put the house under contract.

Thanks!

I wouldn't be buying a $600k or $700k house at all, but if I were, I would get one where I could do a lease option directly from the seller.  Think SuddenSeller with low equity.  To buy a house that expensive that's not far below market value?  No way.

Your house is not an asset. It eats but does not give back, other than being shelter and where you 'want' to live.   I would rather live in an avg ho-hum house and drive my beater to my rentals that make me money than be the 'norm' of living in a fancy house with a fancy car payment and being broke.  Normal people work their whole lives and save nothing.

Be extra ordinary @Johanna Anderson .  Sacrifice a little on the fancy end of your own house and go get some real investment property!

@Johanna Anderson - I was watching a webinar the other day and the speaker said something that stuck with me: not every deal is 100% finance-able but every deal can be 100% financed. What he meant by that is you can't always get 100% financing from one source for your deals. Most hard money lenders will only lend 65-70% of the ARV and some will do gap financing for another portion of it. You can however combine a hard money lender, or traditional lender with a private lender to cover 100% of all the costs/expenses needed to do your deal. If you think about it, many people do this without even thinking about it. They'll get an 80% to 95% traditional mortgage or FHA Loan and then "borrow" the other 5 to 20% from family members or friends thereby getting 100% financing.

All that being said, your idea to buy the house, sell it to another investor and then rent from him just doesn't seem to pass the smell test to me. I don't really see how you make money on the deal and with a five year horizon, who's to say the person you're going to buy from will even honor the agreement or that you will even want to buy the house for the option price at that point in time. 

My advice: work on building up some liquidity (cash savings) and improve your credit to a pristine level. You can build cash by doing deals with homes you won't be occupying or do rehabs or get another job. The possibilities are endless. On the credit side, get a free credit report and credit score and do what's suggested to improve your score further. 

Good luck! 

Originally posted by @Johanna Anderson :

I think that I should buy a less expensive house.

This might not be what you want to hear, but taking a pass on this house might be the better option. If it is a good deal, see if you can get a finder's fee for the property.  This will add to your liquid money you want to use for investing. 

I don't know you, but it sounds like you really want this house.  Tread carefully, as this is where mistakes in this industry are made. 

Good luck!

-todd

@Johanna Anderson

I'm going to have to echo lots of the same advice given here.  Please take the below as well-meaning thoughts offered with good intentions and not as any sort of criticism.

@Wayne Brooks is right.  $60k profit is going to be less than inflation, especially once you figure in transfer costs at the front and back end to buy it and sell it back to you or someone else.  You've also locked up any potential appreciation for such a low cost.

Usually there's an upfront fee for the option.  I haven't done any but would imagine it would be much more than a couple thousand to option a $600k house for 5 years.  

As to $2,300 rent, You can get a fair bit more rent than that for a much cheaper in price house near Silver Spring.  Take a look at what some rentals are in that area and you'll see that you can almost get 2 houses not too far from Silver Spring and collect almost that much rent each house.  So the investor would also be taking under market rents in Silver Spring on a rent to purchase price ratio.  Some people might do that if they were sure that the house had great potential for appreciation, but not at the same time giving you a cheap option to capture all that appreciation.

I agree with @Steve Vaughan also.  You need to keep your housing costs low if you're trying to keep your funds for your flipping business (my assumption, I could be wrong).  It's been awhile since I've looked in Silver Spring, but $600k feels well toward the pricey end of houses in that area--which while it isn't the most expensive part of MD near DC, it's far from the cheapest or most reasonable area to live price wise.  Even the $500k alternate house feels above average in price.  

Is there something keeping you in Silver Spring or would moving further north like Wheaton, Glenmount, etc be an option? How about a different county where you get more house for your money in a still nice area?  I remember when I was looking at houses a few years back I spent months looking at dozens of houses in an area I thought was what I wanted and ended up buying the one of the first houses I saw in an entirely different area that ended up being great for me.

If you want to start your flipping business anyway and are set on buying a place to live, have you considered a live in flip?  Doesn't have to be a disaster, but buy something where you can use your skills to get it really nice for you to live in but also build equity?  

But I don't know if your finances will allow both a house purchase and running your rehab business.  If they don't consider what's most important to you and decide what sacrifices you are willing to make.  You can find reasonably nice places to live for less than $2,300 and save the difference for your business. 

I live well below my means and don't really feel like I'm missing out on all that much.  I spend a lot on a few things that are really enjoyable to me like very nice vacations as I want to see the world but otherwise live off much less than what I earn.  

Anyway, good luck in your endeavors.  Hope it goes well for you.

Is there some reason why you're trying to find a home to do a lease option on? The numbers you are throwing out there just don't seem like they'd be worth an investor's time. 600k house that an investor has to buy (i.e. put down 30%) and sit on for 5 years before they can possibly make 60k?

I don't know too many investors that would look at that as a lease option target. That has to be a quick flip to get in and out.

Seems to me that if you're looking for a house to lease option, you should find one that an investor has already decided to take that route with. My guess is it would be one with a lot more equity than that though - i.e. something like 70% LTV so there's more upside.

And I'm also not sure how many investors would be willing to do a 5 year lease option. Basically, thats locking in the house price in for an extremely long time.

Is there any reason why you need 5 years to buy? I guess with a house at that price, the down payment is going to be huge. But I just don't think there's a deal to be had there unless there's a ton of equity for the investor to make it worth their while.

600k houses don't typically cash flow well. So I would not want to front all that money and then sit for 5 years losing money every month - and have to hope that you can qualify for the loan by then.  Most lease options end up without the lessee even buying the home. 

I might look for another way to skin the cat on this one.  

Fannie mae has the 3% down loans these days. Have you looked into those?

It sounds like you are definitely getting attached to some of these houses. With the funds you have on hand in a hot DC suburb market I would search for a motivated seller and offer to buy their property on a lease option. No need to get another investor involved, unless you must have that must have house.

Good luck!

Contact a motivated Realtor and share your goals. Maybe they will spend the afternoon with you looking at homes for lease and then they can pitch the lease option to the seller.

Originally posted by @Johanna Anderson :

I have started a real estate investment LLC, and I will soon be doing fix and flips. However, my immediate need is personal and urgent.

I want to buy a house in Silver Spring, MD (a suburb of Washington, DC) for $640,000.00. This house needs no rehab. My goal is to sell the house immediately to another local investor, then rent it back from him or her with a 5 year option to buy.

I will fix my purchase price at $700,000.00 when I buy the house back in 5 years. This gives the investor a guaranteed profit of $60,000.00, which would be his or her incentive to buy the property from me.

I have $5,000.00 liquidity and halfway decent credit. I am employed part time. Does anyone know of a hard money lender who will give me a loan to 100% LTV for 6 months?

Thanks in advance for the feedback. Johanna 

 Hi Johanna,

You need more cash.

You need a good paying job for traditional financing, for 2 years.

What to do?

You can make "chunk cash" by doing lease option assignments.

Ex $600K no equity, owes $600K, payment PITI $2500, market rent $2500

Solution:

1. Be licensed in MD

2. Enter into a lease option with the seller, 12 months, 3% down OR do a listing agreement for lease option

3. You make 3% or $18,000 by finding a Tenant Buyer, possibly self employed, and selling your paperwork OR doing a listing agreement with lease option.

Google search SelectLeasePurchaseHomes

Good luck!

Originally posted by @Johanna Anderson :

I only have $2,300.00 a month for rent. 

 Then you cannot afford to live in a $700k house.  You can afford to rent a $230k house.

If you only have $5,000 liquid, you probably should evaluate whether you are sufficiently capitalized to do house flipping. That $5,000 might replace a roof or the HVAC of a  flip house, but what if both of those need replacing? And we haven't even considered holding costs, kitchens and baths, or rewiring, or updating plumbing, etc.  That 100% rehab financing that you will be wanting will probably only find its way to those with rehab experience, and even then it's not always a good idea. 

@Johanna Anderson It sound like you need to do a lot more learning before you start doing deals. You appear to want to live beyond your means by living in a house that you do not appear to be able to afford.

You mention that you have started an investment LLC. Good on you! But have you written a business plan and set a budget? Running an investment business is like running any other business in regards to the need for planning. People don't plan to fail, they simply fail to plan. If you write a realistic business plan and set a budget that you can discuss with a financially competent person, such as your accountant then you will see that you are looking to live beyond your means and give your business little chance of succeeding.

Many people have already commented on this for you. So please take the advice of those more experienced and learn more about property investing before you start, set realistic goals, write a business plan, have a budget and stick to it and above all live below your means for a while. The dream of owning a nice home will come with your success. Don't force it, earn it. As @Steve Vaughan said, "your house is not an asset" if you have a mortgage on it for the original purchase.

Good luck on your journey and happy investing!

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