I’m hoping for some direction on alternative ways to finance a deal.
I want to stay away from traditional financing for this one for a few reasons: house is a gut and would never get approved, I'm planning a larger multi-family purchase later this year and need to preserve credit, this will be a flip so short turnaround or possible BRRR.
This is a single family. It has been vacant and previously owned by a hoarder. Home has been cleared and I have been through with a GC so I'm comfortable with the scope of work (managed similar projects before). This property will never get financed with traditional lenders and I can't finance cash myself. This property is listed with a realtor but my license isn't valid in the state of Indiana (I'm licensed in IL). I think, but haven't confirmed, this is held in an estate after the owner recently passed. Sale price is roughly $100k. Reno would be at least $75k. ARV is roughly $250k. Average rehabbed properties sell in 30-45 days without staging or professional photos. Already been in the market for 30 days and moving into the slow season for this area. If I snag it now i would have it back on the market in peak season next summer.
I’m thinking about two options: (1)seller contract with 12month balloon or (2) private/hard money plus contract. Any other options?
First, on contract, what is the sellers incentive here especially if it sits in an estate. How can I position this as a value add for them? Also, is it possible to get the buyer side commission from the broker if I’m not licensed here? How would you structure this proposal?
Second, private/hard money, what are some ways you might position this? Ideally, I’d get 100% financing (75% private/hard with seller carrying 25% note) or something along those lines. I don’t have a private money lender currently in my network (working on it). I have cash if needed but trying to keep that in reserves so I’m liquid if the reno requires additional capital. How would you attack this?
Thoughts? Ideas? Referrals?
There are preferred hard money Lenders on this site. You can finance 90% of the purchase price and 100% of the rehab.
Sounds like the right option in this case.
I would NEVER use hard money for a project with this much rehab needed. It would be a financial time bomb waiting to happen. Please don't say, "I've done this before and I'm comfortable with my ability to control...". It doesn't matter.
As far as your first option, I think it's your only one. How you convince the sellers about the advantages to them is simple. Show them the interest they would be making, and ask them if they could do that (passively) anywhere else.
Just buy it and use hard money to renovate it. People do it all the time. Figure on 10% and about 3 points.
One thing I noticed in your numbers, you didn't add in any carrying costs and you're tight on your LTV's. @Joe Villeneuve does have a point that it can get expensive and can be a financial time bomb, but make sure you're factoring payments and cost into your decision to buy or not to buy. Also, 70% of ARV is not really that low when you didn't plan on needing a new HVAC or roof, but...
@Matthew Irish-Jones Thank you for the recommendation. Any HM Lenders you would recommend or just dig through the BP lists?
@Joe Villeneuve - I mention feeling comfortable with the scope not to imply overconfidence but rather just to express that the breadth of this rehab is something I am familair with and have contractors ready. However, I appreciate your advice and was thinking along this route as well. Have you worked a deal on contract with an estate before? Is it any different than contract with an individual?
@Stephanie P. thank you for your insights. Im leaning toward a contract sale and hard money rehab since it seems to be a little more flexible. We will see how the negotiations go though.
Any hard money lenders you would recommend?
Originally posted by @David Prince :
@Joe Villeneuve- I mention feeling comfortable with the scope not to imply overconfidence but rather just to express that the breadth of this rehab is something I am familair with and have contractors ready. However, I appreciate your advice and was thinking along this route as well. Have you worked a deal on contract with an estate before? Is it any different than contract with an individual?
Estates usually involve multiple people...and none of them agree with each other, and at least one of them holds out for something ridiculous.
@David Prince I had a good experience with AMZ Capital.