Using a personal loan to purchase real estate
Clermont, FL · Member since 2017 · 22 posts · 8 votes
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!
@Mathew Law
Which is what a slumlord is, search my posts for that term and you'll get a better picture of why real investors don't go there, and it's not all about cash flow.
Dealing with any insured lender, be very careful about claiming the use of funds, that is how loans are classified and misleading is a felony. But yes, if you can obtain unsecured funds for personal use you can use it to buy or rehab, if there is any other financing, you need to answer the question about.....is any part of the purchase financed or from borrowed funds? That includes money from Daddy.
There is no "technically" way around the use of funds, if you tell the bank it's bill consolidation you better pay off bills, buying another rental to earn money to pay your bills isn't a justification calling the loan a bill consolidation matter.
Loan classifications generally go to the greater purpose of the use of funds, personal, business or real estate.
Banks will work with borrowers, just be clear about the use of funds! :)
Woah! @Bill Gulley could you elaborate a bit? I did do a quick search of your posts, but I definitely don't want to be classified as a slumlord. I mean, I'm sure most landlords don't set out to be slumlords, but I don't even think I could stand that perception of my business.
To explain a little further, and to build off @Mike Cumbie, this is a personal loan, with the justification of "buying property" (or something to that effect), to cover a significant portion of the purchase and rehab costs I cannot cover out of pocket. Then, the plan is to refinance and hold, because that's how my numbers seem to be working. I may sell if the numbers work that way, but this is not really a hot market either.
I don't believe there is anything wrong with using current market rents to justify why I can only put so much into the property. The property is perfectly habitable. However, I can do a significant update and make the right repairs with the numbers I see right now, but I cannot justify over-rehabbing when the intention is to hold as a rental and in a market where it doesn't make sense.
I don't mean to sound defensive, but please tell me if I'm missing something here.
Woah! @Bill Gulley could you elaborate a bit? I did do a quick search of your posts, but I definitely don't want to be classified as a slumlord. I mean, I'm sure most landlords don't set out to be slumlords, but I don't even think I could stand that perception of my business.
To explain a little further, and to build off @Mike Cumbie, this is a personal loan, with the justification of "buying property" (or something to that effect), to cover a significant portion of the purchase and rehab costs I cannot cover out of pocket. Then, the plan is to refinance and hold, because that's how my numbers seem to be working. I may sell if the numbers work that way, but this is not really a hot market either.
I don't believe there is anything wrong with using current market rents to justify why I can only put so much into the property. The property is perfectly habitable. However, I can do a significant update and make the right repairs with the numbers I see right now, but I cannot justify over-rehabbing when the intention is to hold as a rental and in a market where it doesn't make sense.
I don't mean to sound defensive, but please tell me if I'm missing something here.
Don't take that as you'll be a slumlord, you're right, many begin with low end properties with good intentions, but the economic constraints begin to play and pretty soon, you won't put more money in because your return is the most important aspect. That's an issue .......
If you're only investing for cash flow, you're missing the scope of real estate investing.
You're right, don't over build, you can't make a silk purse out of a sow's ear, so don't buy a sow's ear, Do buy the cheapest house on the block, that gives you room to force appreciation.
Unless you're a cash buyer, don't buy homes you can't finance!
You might be putting he cart before the horse, trying to serve the needs of lower income students, that can be great, but you buy the property first for potential, then fill with that target market. If the property isn't bankable you need to be in that with your cash, or a partner with cash.
Easy to buy, hard to sell, that's what a property can be that can't fit bank financing. If you can't get a loan then your perspective buyers will all need to be cash buyers.......why limit the possibilities.
Look also at neighborhoods, gentrification, is the area in decline, can you improve the neighborhood to improve your properties? Is the property desirable, that is a function of value. If you end up buying or selling on cash flow, without potential you're losing money.
I suggest strongly you not take funds from an individual to buy and rehab on an unsecured basis, probably best to partner. With any other financing you'll be in a position of borrowed funds in your deal, mentioned above, partner and you two will be using your own money together.
Slumlords are often created because of poor purchase decisions. :)
Here's a huge advantage in it. You can use the money over and over again, but only pay for it once. If you keep putting it into deals, and getting it back out through any means, you can put those same funds back into your next deals...and don't have to pay it back, and apply for it (and pay for it, as in fees, etc...) all over again.
Now, if you use it starting out for flipping, you can compound these funds for free.
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!
Hi Brandon!
Do you remember the lender your in-laws had for the personal loan and the refi?
I am going through something similar. Thinking of taking out a personal loan to finance another investment property and then later refinanced. I checked with my existing lender and they said they wont be able to refinance "if the money is either not my own or via HELOC"
Is it true now? Can someone advise me for another lender which does not have this criteria.
My investment property is located in Parma, Ohio area.
Woah! @Bill Gulley could you elaborate a bit? I did do a quick search of your posts, but I definitely don't want to be classified as a slumlord. I mean, I'm sure most landlords don't set out to be slumlords, but I don't even think I could stand that perception of my business.
To explain a little further, and to build off @Mike Cumbie, this is a personal loan, with the justification of "buying property" (or something to that effect), to cover a significant portion of the purchase and rehab costs I cannot cover out of pocket. Then, the plan is to refinance and hold, because that's how my numbers seem to be working. I may sell if the numbers work that way, but this is not really a hot market either.
I don't believe there is anything wrong with using current market rents to justify why I can only put so much into the property. The property is perfectly habitable. However, I can do a significant update and make the right repairs with the numbers I see right now, but I cannot justify over-rehabbing when the intention is to hold as a rental and in a market where it doesn't make sense.
I don't mean to sound defensive, but please tell me if I'm missing something here.
Don't take that as you'll be a slumlord, you're right, many begin with low end properties with good intentions, but the economic constraints begin to play and pretty soon, you won't put more money in because your return is the most important aspect. That's an issue .......
If you're only investing for cash flow, you're missing the scope of real estate investing.
You're right, don't over build, you can't make a silk purse out of a sow's ear, so don't buy a sow's ear, Do buy the cheapest house on the block, that gives you room to force appreciation.
Unless you're a cash buyer, don't buy homes you can't finance!
You might be putting he cart before the horse, trying to serve the needs of lower income students, that can be great, but you buy the property first for potential, then fill with that target market. If the property isn't bankable you need to be in that with your cash, or a partner with cash.
Easy to buy, hard to sell, that's what a property can be that can't fit bank financing. If you can't get a loan then your perspective buyers will all need to be cash buyers.......why limit the possibilities.
Look also at neighborhoods, gentrification, is the area in decline, can you improve the neighborhood to improve your properties? Is the property desirable, that is a function of value. If you end up buying or selling on cash flow, without potential you're losing money.
I suggest strongly you not take funds from an individual to buy and rehab on an unsecured basis, probably best to partner. With any other financing you'll be in a position of borrowed funds in your deal, mentioned above, partner and you two will be using your own money together.
Slumlords are often created because of poor purchase decisions. :)
Not too sure what you mean by "that's what a property can be that can't fit bank financing. If you can't get a loan then your perspective buyers will all need to be cash buyers" .....Usually, at least here in Miami, a house that can't fit regular financing Is usually the type of house that I want, as they are usually bank owned foreclosures that are in need of a fair amount of rehab. Am I missing something? I'm not holding properties, although I'm in a situation now where I have 75% of the purchase price of a property I'm looking at and I'm considering a personal loan, as FHA is a nightmare, and the few local people that I've talked to here that have money to invest want far too much accountability....Understandable, but I want to do as much of my own thing as possible. A personal loan seems like the ticket. I will do more research
Can you use a personal loan and then hard money on the same deal? will HML call that out?
Can you use a personal loan and then hard money on the same deal? will HML call that out?
This depends on the HML, how they qualify your liquidity, and if they allow for secondary financing. Most ask for bank statements and will call out anything fishy that they see on the bank statements. Others won't care (and may not even ask for bank statements).
Or if you know that they ask for 2 months of bank statements, get the loan 3 months prior to doing the deal and they won't see the deposit.
Of course, I'm not advocating you should be investing in this manner anyway... it's extremely high leveraged and risky.
Personal loans generally have the opposite problem. Being uncollateralized, it's much more difficult to borrow $100K than $30-50K.
When I started out, I actually loaded up some 0 APR credit cards but only for about 20-30K. Was cheaper and easier to get at the time. Paid them back quickly and wound up paying an effective annual rate of ~2.5% over about 18 months. Obviously takes a lot of discipline though, not something I usually go around recommending.
We got an uncollateralized loan through a lending organization that was repeatedly targeting my wife based on her profession. It started at about 15% and 2 points, but my wife beat them down to 8% over 7 years for $55k with no early repayment penalty. We used it to purchase a $38k duplex foreclosure and and towards some heavy lift repairs on another project we had going at the time. Just make sure to allocate it and get it working right away. We made the mistake of closing on the note just prior to closing on an FHA loan and it causes a BF headache all around, should of waited the 10 days until closing on the FHA loan.
@Linda S. how big was your loan? And if you don't mind can you share what credit or income requirements they asked. Thx,
Rizzy