My wife and I have 3 properties currently and were just approached with an off market triplex and SFH. We want to buy them and fix them up to rent back out. All in we would need about 300k for purchase and rehab. We don't have the on hand cash for a down payment plus rehab and we cant house hack one of them because we just purchased another house with a VA loan. I am worried about hard money as we have never used it and I have heard a few horror stories. Wondering what options we haven't explored that some of you might have or any good experiences in this type of situation.
Out of all (3) of your homes do you have enough equity in each one to do a cash out refinance on all (3) or maybe 1/2 of them?
Well I’m just thinking out loud here
1. Like what was said do you have enough equity to do a HELOC or refinance with equity taken out?
2. Is the owner willing to self finance? Although you'll still need cash for the rehab. The owner self finances then use a HELOC for the repairs? Disadvantage is you have pay back the HELOC and loan.
3. Get a hard loan for the purchase and rehab. Then refinance once you have tenants. Disadvantage is you’ll have turn it quickly so you aren’t paying high fees for long. Make sure you calculate correctly so you don’t end up upside down.
4. Do you have any rich friends? Maybe network for cash investors. Use the BiggerPockets calculator to create a nice report. Ask them to finance and either you pay them back x amount or a percentage of the net rental. I would prefer to pay them off over time so they aren’t with you forever. And maybe repeat with them for the next deal.
5. Do you have enough leverage for a conventional loan?
Thank you both for responding. Currently I have purchased all these houses in the last year so I don't have a lot of equity in them at this point. The one property we rehabbed we are currently refinancing and paying off the private money we used for that. We will only get about 10k on top of paying everyone back off of that house.
Owner financing wouldn't work on this property because he is using this money to buy his own house after he sells. I could possibly work out a seller finance deal with him to start work on the one property and buy them out right in a year or so when we would qualify for a conventional loan more easily. This could get complicated though and would have a few more moving parts.
With hard money I am worried about the massive interest payments on about 300k for a year or so. I also need to make sure that again I'd be able to refi and get a loan to pay back the hard money. That is the part that worries me as I have heard the stories of people being unable to secure a loan on the back end to pay back the hard money. I have bought 3 properties in this same block and they have done fantastic in terms of rent and value so I know the deal is good and the numbers work out very well. I am just very nervous being over exposed to high interest payments and the loan refi on the back end.
You should be able to refinance the property after 6 months, given the property is stabilized, at about 75% loan to appraised value. No income verification required with rates in the 4's on a 30 year fixed. You'll pay a couple of points and go on with your day.
Does that help you in your estimation?