So I have spoken with many BRRRR investors I an acquainted with and most have shared with me their stratery or agreement that they present to PML.
Basic gist is Lender puts up purchase price plus rehab cost but we only purchase at 70% arv after repairs.
Loan agreement is 8% interest only for 2 years. Then of course balloon.
The issue i am running into is that my PML is asking for additional collateral since I have 0 money in the deal and the potential of a market turn.
I definitely get the concern but from my view point they are at worst case scenario going to be sitting in 1st position with 30% equity in said property. If I do go bad they are in a secured asset they can do whatever they wish with. If i go bad and the market turns then rents tend to go up.
Am I missing something here? Would love all view points.
@Nick Hill the lien on the property is the collateral. The lender shouldn't need anything more. Your problem is that you need more PML. Then you can have them competing for your deals. If the one guy wants more assurance, you go with your other guy. A market downturn only affects you if you are selling or refinancing. BTW, interest rates are going down, so your refinance exit to pay off the balloon is getting better.
@Anthony Dooley. That is exactly my thinking as well. The only thing I can imagine is he thinks we are going in at 100 LTV. I would see his point more. But a 30% equity share in the property should be sufficient enough. Best case scenario for his is that I do go bad.
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