2nd Lien Financing to get 100% LTV financing

12 Replies

Yes, but it most likely will not be for 100% combined LTV between the two loans. They will want you to have money in the deal (5-10% minimum).

One alternative would be to see if the seller will finance the portion that you would otherwise use a hard money loan for. If your 1st lien mortgage is 75% LTV, you could ask the seller to carry the remaining portion...

@Mark Weinberg For HML, no, I don't know of any that will do 2nd lien position, they always want 1st position. Maybe for a private lender if they'll accept 2nd.

Note if the 1st position lender is conventional, they usually won't allow this, as the downpayment can't be borrowed. I have done it successfully with a commercial loan, but I had a good deal, good relationship with the bank, great credit and cash reserves.

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@Tom S. Agreed. I am a hard money and private money lender, and we do not typically take 2nd lien positions. We do allow 2nd lien positions on our loans, and I know investors use private money to get the remaining 15-20% LTV

@Mark Weinberg you're looking for an individual with a self directed IRA or Solo 401k who would park their money as a second TD at 100% CLTV. Doable yes, but hard to find and you need to structure it all well. Would aim for 70% NOO loan from conventional lender in first position at 30 year fixed note and then source second lien private for 15 years, 8-10% IO loan and small guaranteed piece of the upside if spike in equity and you ever sell. That could entice retirement account individuals who would like to lien behind the 70%, especially if real estate entices and property cash flows even with both liens and expenses. The hard part will of course be sourcing these private lenders, but that's up to you to do so. They do exist and plenty are looking for that type of passive real estate investment if you can prove to them you are a worthy risk. Good luck!

Technically doable, but why would anyone want the 2nd position of an over leveraged loan. 

You shouldn't even want someone you consider a partner to take such a lousy loan. 

Find some equity! 

Why would anyone want to be financed 100%?  Please don't tell me bc you want to leverage and use other peoples money. How did 100% finance work out in 07-09?

@Mark Weinberg I agree with @Alexander Felice - that isn't setting your lender up for success and probably not you either. @Aaron Pfeffer I like the creativity, but 100% LTV in 2nd for retirement funds is not good in too many ways. They can't even deduct the losses!

What are you trying to accomplish? Is it flip or buy and hold? Also, when you say LTV - do you mean Cost (purchase + rehab) or ARV (after repair value)? I'm assuming you mean ARV. If you are talking Cost, then if you are creating/forcing equity, my answer (and I think Alexander's as well) would change.

Assuming you are talking LTV of ARV - you should consider a partner. They can bring in equity which will be more expensive to you but is a much healthier structure based on the deal.

Eh, it's a mindset thing @Dave DeMarinis

From a lending perspective 100% CLTV is obviously horrible, but this is more annuity than loan. Follow...

Custodian retirement accounts are hard enough to find suitable vehicles to generate good returns on (especially if you're not an accredited investor), and JV deals trigger UBIT, but straight interest won't. Loaning a flipper 100% money or gap financing can be treacherous, but show me someone who lives around and owns 10 SFR rentals in a small town and suddenly I'm piqued by their business model. If each house is worth $150,000 and rents for around $1,500 and they've got 70% NOO first loans at 5%, that's $565 in mortgage. My $45,000 costs $300 a month to be in second position and if taxes/ins/expenses are another $400 a month, they are cash flowing $200-300 a month, which obviously only grows as rents increase and my lien looks better and better as the principal decreases.

Now, sure, I'm painting a choice scenario...1% rent rule, an investor with that kind of SFR farm...but funny enough...I see more and more of those scenarios existing the more I talk to people. Point being, there are way more landlords like this who exist than I expected, just as there are a ton of private individuals with self-directed custodian accounts who consistently look for 8-10% returns that don't cause too much brain damage. 

The structure may not be for everyone (nor do I put any of these types of deals together personally), but they exist. And if the real estate investor is competent, those retirement account holders are often happy with the results.