Flipper/Rehabber · West Hartford, CT · Member since 2013 · 128 posts · 52 votes
Hope everyone's doing well
I spent the better half of last week speaking with private lenders and it looks like I have 2 who are interested in loaning money. (!!!)
My plan is to begin flipping properties in my area to raise cash for rentals.
I was hoping someone could give me a brief outline of using OPM to purchase/fix rentals and then refi out into a conventional loan, thus returning the original lenders investment..
Is that basically it? What kinds of professionals outside of the forums could I ask for further details?
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
13y
Let me clarify @Scott W. 's last point. If you've been a landlord for two years, the lender will look at the actual results from your tax returns for your existing properties. Savvy lenders will add back depreciation because that's not actual cash spent. For the new one, they will take 75% of the rent and subtract the PITI payment for the new loan. These amounts are the "net rental income".
The DTI calculation is a bit complex. First, completely ignore the rentals. Add up all your other debt payments and your income. DTI is debt payments / income. Now, look at the total net rental income. If that's positive it increases your income and decreases your DTI. So, good rentals help your DTI. If its negative, it increases the debt part of the calculation, hurting your DTI.
Real Estate Investor · chicago, IL · Member since 2012 · 1k+ posts · 231 votes
13y
I did this. I borrowed from family & paid 6% interest, no points, for 6 months. I had to chip in $11k as I underestimated the rehab. I also underestimated the ARV by about $15k.
I did a cash out refi 30-yr fixed 3.9% apr in july 25% equity and got all but 2k back (this includes the refi costs as well). The bank sent a check directly to the original loaner.
the market has been picking up, in my area, so it would probably be tough to do this now with little $ out-of-pocket.
With the way you described, it sounds as if I could use 100% OPM, including rehab $, and if purchased correctly, I could essentially buy a rental, fix it up and then refi out to pay back my lender and include their interest with that payout?
Investor · Tampa, FL · Member since 2013 · 2k+ posts · 1k+ votes
13y
@Taylor Shapiro I would do what Scott said all day long if I could. Its a no brainer. @Scott W. You got a great deal on that loan. I'd love to find someone like that by me.
Flipper/Rehabber · West Hartford, CT · Member since 2013 · 128 posts · 52 votes
13y
@Scott W., did you have a full time job when you refinanced the property?
I'm working hourly for an investor in my area. I'll soon have access to the MLS, but I'm not sure how things will work out if I have an offer accepted where I'm using 100% OPM, including repairs, and then try to refinance the property without having a "full time"job. The main objective here is to get my lender's money back as quickly as possible.
Would you mind listing a few things I would need to get in check before I continue with this approach?
This could be a hell of a financing approach if I'm able to refinance without too much of a hassle...
Real Estate Investor · chicago, IL · Member since 2012 · 1k+ posts · 231 votes
13y
1. yes, I had a full-time job when I refinanced. You will need to qualify with your income.
2. If you're doing a rental, the bank will not give you any credit for the rent unless you have been a landlord for 2 years (you need to provide 2 years of tax returns as proof). If you have been a landlord for 2 years, you will get credit for 75% of the rent. So you will need to look over your debt-to-income ratio.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
13y
Let me clarify @Scott W. 's last point. If you've been a landlord for two years, the lender will look at the actual results from your tax returns for your existing properties. Savvy lenders will add back depreciation because that's not actual cash spent. For the new one, they will take 75% of the rent and subtract the PITI payment for the new loan. These amounts are the "net rental income".
The DTI calculation is a bit complex. First, completely ignore the rentals. Add up all your other debt payments and your income. DTI is debt payments / income. Now, look at the total net rental income. If that's positive it increases your income and decreases your DTI. So, good rentals help your DTI. If its negative, it increases the debt part of the calculation, hurting your DTI.