private refi

11 Replies

since lenders don't like too many loans with an investor, and since i plan on buying several hundred over the next few years, i thought it might be easier to go private.

i would buy with cash and rehab. afterwards i would refi to pull out investment and some profit, not going over 80%LTV, with new 1st. explain to lien holder that i would be selling doing a wrap to create cash flow. be up front with them.

just wondering if this is plausible. i would love to get opinions or any other ideas for accomplishing this.

jim

Large scale investors (to the magnitude you speak of) are faced with the same issues you have mentioned (dings to personal DTI and credit report/scores, etc.) and often turn to private funding to avoid these concerns.

Be mindful of title seasoning issues specific to the lender you work with; a majority of conventional lenders require 12 months, but there are a handful of cos. that offer <12 months/< 6 months/no title seasoning to address this component of your plan.

I would strive to keep it to 70LTV or lower (your cash out refi) as the "hits" to the rates are pretty steep when you venture above this.

Hope this helps.

Regards,

Scott Miller

scott

thanks for the input. the 70% ltv is interesting. i'm doing one right now where the interest rate will jump 3/8 to 1/2% from 75 to 80 ltv. at $64,000 it is not a significant amount, but definitely something to keep in mind.

i'm paying cash and after rehab will refi(1-2 months most). not sure how much weight that will have on refi.

i even thought of offering a private investor all proceeds over 80% when buyer sells or refi's. that way i get my cash profit up fron and monthly pmts with the wrap.

still a work in progress for exit strategy.

jim

jimbo; I hate to burst your bubble but when a lender raises your interest rate 3/8 or 1/2 it raises your operating costs (at a 6% base rate) from 4% to 5% PER MONTH. That is a SIGNIFICANT amount. Particularly as the number of loans you're working with increases.

I'm a big believer in taking care of the pennies first. I'll do just about anything to keep from jacking up my operating expenses.

all cash

i don't know, if i have to worry about less than $20 per month, when i get an extra $4,000 to $5,000 in my pocket, than i am in the wrong business. plus, i plan on selling using a wrap to create cash flow. grant it, i'm talking about homes in the $80,000 price range.

it would definitely make a difference on higher amounts.

jim

I have a rehabbed property that I owe $85k on. It's about 74% of ARV. I was going to refi to get the rest of the 80% out (I'm in TX). I decided it wasn't worth spending a couple thousand to get $4-5k out of it. If it was an absolute emergency I would, but it doesn't seem like a good deal to me. Maybe you're getting your refi for cheaper than the one I looked at. Hope so.

no, the difference is you already have a loan and only want a small amount more. mine would be free and clear when i went to refi, so i would have costs anyway. plus, i have pay off LOC.

jim

Yeah, you've got a better deal than I do. From now on I'll be trying to finance the initial rehab with hard money, or seller carried seconds. Getting a 30 yr note on a rehab was almost harder than the remodel I did...

EZloan

correct me if i'm wrong, but if i pay cash for the property i would think there is no reason for seasoning. of course, you still have to prove you have done enough to raise value and have the comps to back it.

jim

Jimbo, since you're planning on doing hundreds of these why are you going to increase your costs by taking out mortgages after you've paid cash? I know you plan on doing wraps, but remember the quality of people you're going to attract with wraps are going to be in the "sub prime" range. And you can see what's happening in that market now

Back in the day when lots of VA and FHA fully assumable loans were available on 5-10 year old loans I used to do lots of this, some successfully, some not so much. I always had a good spread between the underlying loan and what I was charging on that loan, and I had the cream on the second that I took.

As those loans disappeared from the market I found it more feasible to just buy for cash, and resell on low down-owner will finance deals. The people I attract are "payment buyers" so I know going in there will be a certain level of fallout. I used to counteract this doing CFDs until the law in TX made that a less attractive option. Now I just do straight up WD/D of T sales. I have all the forms in my computer and I charge $350-$500 for "document preparation". Which amps my take a little bit more.

BTW, I strictly deal with houses less than $80K, generally lots of them in my neighborhood. I haven't paid a nickel in loan fees, app. fees, interest, points or any other junk fees in about 13 years. Schweeeet!

all cash

actually, i think the tightnening of conventional loans is going to create a large market for owner-financing selling. i just want to get some profit out up front.

i'm thinking of selling either using a land trust(which i would have to refi first), or creating a first and selling it to a note funding company. i would have to discount, i know, but depending on what i net, at least i'll hopefully be able to take out most of my profit and move on.

i think i have a better chance of moving if i give up a little of my profit. sometimes win/win works.

jim