Clermont, FL · Member since 2017 · 22 posts · 8 votes
I was hoping to find someone else who has done this, but I haven't seen any posts.
I'm buying a cheap property to fix and hold, maybe BRRRR in the end. I'm still waiting on quotes from contractors, but the initial cost will likely be less than $50k.
I don't see any HMLs through my initial research that lend less than $50k.
Honestly, 70% LTV puts me just over $50k.
So has anyone just used a personal loan to purchase real estate? I've seen people post about using it for repairs, but purchase?
I've done business with SoFi before, and they have me approved for the right amount. My credit is excellent, and I have a day job, so I know that helps.
So what's the deal? Is it reasonable to use an unsecured loan to purchase and fix real estate, then refinance into a conventional loan?
Investor · Maui, HI · Member since 2009 · 13k+ posts · 3k+ votes
9y
My inlaws did it! They got a personal loan for $50k, then used it to buy a property, then refinanced it 6 months later. Now they are looking to do it again!
I currently have a personal loan on one. It was one of those that in no way could be financed, 11% personal loan over 5 years (I will sell it at 4 months and pay it back, but I planned on worst case 12 months). It was just easier than hard money because there is no collateral or paperwork. A HML would have wanted points as well, the personal loan has no prepayment penalty soooo, As long as the upside covers the cost of the money then it is a viable option. Especially for these lower number houses.
Investor · Maui, HI · Member since 2009 · 13k+ posts · 3k+ votes
9y
My inlaws did it! They got a personal loan for $50k, then used it to buy a property, then refinanced it 6 months later. Now they are looking to do it again!
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
9y
I've done this a few times, especially with some of my owner-financed purchases. Borrowed the down payment with a personal loan or LOC or credit card check.
Funny how no bank will finance a small with collateral like RE, but will give you large credit lines or loans with just your signature. Easier to buy a mobile or car because of RESPA rules.
Due your due diligence and don't over-extend yourself @Matthew Law. How quickly we tend to forget the nightmare that was 9 years ago. Nobody could sell anything and lots of blood in the streets. Proceed with caution!
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
9y
Originally posted by @Account Closed:
Steve Vaughan do you have to disclose why you are applying for a loan?
The loan purpose box does need to be checked. Haven't done one in a long time, but I used to check 'debt consolidation' or 'home improvement'. Technically not untrue!
Clermont, FL · Member since 2017 · 22 posts · 8 votes
9y
@Account Closed and @Steve Vaughan Thanks for the clarification. The loan purpose box does need to be checked, and some (like LendingClub, even though the funding is different) actually have a box for buying a house. It's usually used to finance a down payment, but I guess my current purchase is what many use as a down payment.
@Chris Purcell I think the credit hit depends on some things more than just taking out the loan. In my recent experience borrowing from SoFi (they should pay me for this stupid post, but, no, they aren't) for refinancing and consolidating, I thought I was going to take a hit. However, I actually jumped up about 80 points total once the dust settled.
I'm not saying that taking out a personal loan will boost your credit score, but if you have good credit and are doing the right things, I don't think it will kill you.
Of course, Steve gives good advice. It's important not to overextend. I'm only doing this because the numbers work for me. (You're not my mom, Steve!) :P
I did a personal loan to buy my first duplex, so yes, it's definitely possible and others are doing it! I did mine through LendingClub.com, and they were great!
When I first started I had an LLC but not much more than that. I was able find a bank to give me a $30k business loan secured solely by my "business assets" which at the time consisted of a single office chair and an ancient computer...
When I first started I had an LLC but not much more than that. I was able find a bank to give me a $30k business loan secured solely by my "business assets" which at the time consisted of a single office chair and an ancient computer...
Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
9y
Banks do not like dealing in these low value assets because they tend to be less profitable and higher risk for them. Perhaps you should consider following their lead. Bump up the value to at least $100k+ and you should get much easier cooperation from the banks, lower risk, higher profits for you, and usually with far fewer headaches too. Or not, up to you, but you should understand the why before you try to figure out the how IMO.
Rental Property Investor · Austin, TX · Member since 2016 · 1k+ posts · 1k+ votes
9y
@Account Closed It was a fairly new LLC and if there was any credit history it was pretty basic. It's been a number of years so the specifics for me may not apply to you but it's just another topic to ask about when meeting with a potential lender.
Clermont, FL · Member since 2017 · 22 posts · 8 votes
9y
@David Faulkner that's interesting, and I get it. Honestly though, I don't think this market will support such a hefty value increase. The rents won't support it, and it doesn't make sense for the market. We're talking city-proper location, walking distance to a college campus.
@Ryan Murdock also an interesting thought. I honestly haven't put much value into finishing the paperwork for my LLC (Which is why it's pending - I'm just dragging my feet while I focus on the other stuff). Maybe I'll look into this at some point.
@David Faulkner that's interesting, and I get it. Honestly though, I don't think this market will support such a hefty value increase. The rents won't support it, and it doesn't make sense for the market. We're talking city-proper location, walking distance to a college campus.
@Ryan Murdock also an interesting thought. I honestly haven't put much value into finishing the paperwork for my LLC (Which is why it's pending - I'm just dragging my feet while I focus on the other stuff). Maybe I'll look into this at some point.
There are no properties in that market with an ARV of $150k+? That to me would be a sign that that market is slowly dying ... I would find a new market then ...
I just sold a beautiful home built in the 90's, 2000+ square feet with 3 acres and 2 outbuildings under $150K. It's value is about $40K more than it was 10 years ago.
Don't know if I would call it a dying market. I think Orange County California may be a little different than a lot of areas. As far as fixing and selling, I am not sure what the difference is of making 30K from a property originally bought for 25K or making 30K from a property bought for 100K is. One with a personal loan and one with a traditional mortgage from a bank, except one is a whole lot cleaner of a transaction on the buy end.
I just sold a beautiful home built in the 90's, 2000+ square feet with 3 acres and 2 outbuildings under $150K. It's value is about $40K more than it was 10 years ago.
Don't know if I would call it a dying market. I think Orange County California may be a little different than a lot of areas. As far as fixing and selling, I am not sure what the difference is of making 30K from a property originally bought for 25K or making 30K from a property bought for 100K is. One with a personal loan and one with a traditional mortgage from a bank, except one is a whole lot cleaner of a transaction on the buy end.
Properties simply do not sell way below replacement value on a persistent basis in a healthy market.
Clermont, FL · Member since 2017 · 22 posts · 8 votes
9y
@David Faulkner and @Mike Cumbie You know how prices can change from street to street? That's where I am right now, and it's not for reasons that would make me shy away from the deal.
Don't get me wrong, I'm hoping to be pleasantly surprised by the post-rehab appraisal, but I'm not banking on it.
Clermont, FL · Member since 2017 · 22 posts · 8 votes
9y
Actually, I feel like that deserves a little bit better explanation, because I'm sure other people are in the same situation. So, if I was looking to sell this property, maybe I would invest a little bit more in the repairs and bring the value up more. But I'm looking to rent this property the students who are used to paying between $400 and $650 a month for rent. If I repaired more and brought the value up more, I would have to seriously rock that boat to get my money back that I've invested. That's why am sticking to a lower value repair. Does that make sense?
Ah your situation is different than mine. In my case the house is uninhabitable. We picked it up for just over the value of the land (Lets say 20K ish) . The house is a small 2 bedroom and my partner said he can do the construction work for 40K. The comps run 90-100K (ARV if you will). The area is hot and anything under 100K will have 30 people viewing it within the first week. So the plan is a 2 month renovation (Not me, I just look good) and sell.
I would not keep a personal loan long term because the interest rates are too high. Now, if we decided to keep it as a rental (a second out), then we would refinance it since now it would qualify for a mortgage. I wouldn't buy a house that would qualify for a mortgage with a personal loan because the competition is high. If less people can buy (Those with cash) you can get a better deal and then do the work so that you can market it to everybody else (FHA\VA\USDA) etc. There are plenty of first time home buyers that want the lower end houses, but if it can't mortgage then it does not matter they are out and the price drops quite a bit.