Can I finance this way?

19 Replies

I have off market option for SFR in Medford Oregon for 95k. It is worth at least 210k and needs no work done. I asked a bank what they could do for me. They needed 15% down and closing costs.

Is it a common overlay to require a down payment when the purchasing way under retail?

My half-brain plan: 

I work with the seller to add my name to the title (assume they will), have them sign over the rights to refinance (or something similar) then apply for a refinance loan to pay off the other parties HELOC.

I am simply trying to avoid a down payment for a 15 year loan for a rental. Would this work \ worth the hassle of avoiding the 15% down?

Any thoughts? Thanks for reading. 

Joe,

I'm here in Oregon as well.  I would just keep shopping it to another bank.  If your value is correct just tell them how much $$ you need to purchase and tell them they can have the first mortgage.

Most banks just want the LTV (loan to value) to be 70%. Sounds like you got a banker who didnt know what to do. If it is your first property maybe the banker is just being cautious with you...?

If you keep having trouble feel free to PM me and I'll put you in touch of some of the banks I use down here.

Demetri

@Joe Mercer How did you arrive at your valuation of the property?  And how did the bank arrive at theirs?  You need to know how they got their numbers before you move forward.

Or, as @Demetri T. said, just go elsewhere.

What does the seller want? If they want to cash out ASAP and you can't find a bank to work with you, find a money partner to do a joint venture (especially if they have experience/skills you need) or a private lender to do hard money. Most lenders will want a down-payment but some will not if the deal is right and they're ok with asset based lending. Once the house is in your name refinance it and pay off your partner/lender.

Now if the seller is not in a hurry, you have a range of options. Lease with an option is a pretty basic one. That buys you some time. 

Either way unless you don't  find a bank to work with no money down you have to break into two steps one way or another. Step one gets you control and step two is your buy and hold low interest loan. Sure you'll have to pay for a few financing fees two times but that's just the the cost of doing business with the kind of equity your getting.  PM me if you need contacts for a couple assett based lenders. 

Also,  Brandon Turner's book on investing with low and no money down is fantastic. You can get a digital copy and do a quick study for ideas. 

@Demetri T. ,

Thank you for your help. I talked to some random bank rep from Bank of the West. It was pretty black and white with the 15% down for rental properties. Even after reiterating 45% LTV.

@Michael S. Helton ,

The valuation is accurate.  They just had big bank conservative overlays.  I will shop around for sure.  Do you think being on the title and financing as an owner would give me more favorable terms?  Thank you for your input and advise.

@David Fritch ,

The book is a great resource. Starting to wish I didn't loan it out. Just exploring a way to avoid double financing charges. The seller is willing to do anything and doesn't need to sell for a few years. If I cannot find a lender that will loan with no down payment for a 45% LTV then I will ask if they would if I was on the title.

I am more concerned with getting terms as close to refinancing owned rental property and was thinking if I was on the title this may be a possibility. 

I like your plan but I don't have any knowledge to contribute. Keep us posted. 

@Joe Mercer

It may not help with the immediate 15% Down issue, but have you thought about using the 15% down option to purchase the place then put on a HELOC using the equity on that same property and then cut yourself( Or your LLC) a check for the 15% you just had to put down...

Just a different way to skin the same cat...  however it would require the 15% up front even if only for a few days... but would be 100% financed.  

This method could also be used to fund a rehab on that same property...  if so required...

Or you could use HELOC from another property's equity for the 15%... not sure if your in that position...

Just an idea.

@David Fritch ,

I definitely will!

@Jeff V. ,

I really like the HELOC idea. I just have never been able find lender that would give me one on a rental property. I am sure there is a way and other have. I will add it to the list of questions to the perspective lenders. Thanks for the suggestion.

@Joe Mercer

Definitely shop around. We have one from our first rental using the equity after repair. You can add more properties to the HELOC to expand your limit... they evaluate your equity annually and raise/lower your limit accordingly.

Beware... If you have many properties under the same umbrella HELOC, they are all at risk... Also, another caveat... If the equity drops for your annual evaluation and you have a higher balance than your equity allows you could be forced to either pay up the difference or they foreclose on all properties listed as collateral.

FYSA, they are really good to have but I would be cautious on carrying a high balance.  Pay down the balance as quickly as possible.

Cheers.

Jeff

Your original post mentioned something about convincing the Sellers to put you on title first and then refinancing to cash them out. My question is why would they want to do this, and how would you explain the appraisal documents that they will receive saying that the house is valued at approx. $210,000 but you're going to pay them less than half of this?

@Neal Collins ,

This will not work for most purchasing agreements for the reasons you mentioned.  I was simply exploring this as an idea on how to finance with better terms.  I am being offered to pay off someone's line of credit for the deed with the option to buy it back.  Not a common situation.

Thank you for sharing your concern.  

It really doesn't matter what price you are paying vs value, there truly is very little "no money down" out there these days. Possibly if you can find a Private Lender, maybe a few Hard Money lenders, but Bankers are going to want to see strong financials and most likely some sort of history with investment properties before they will hand you a checkbook to use at will.

IF you have a motivated seller the easiest thing you could do would be to have them put the property into a LLC with both of you as officers. You could then buy him out and structure it as a refi. You MAY have to season for 30 days, but there are surely Lenders out there that will finance the LLC between 50%-75%, provided you have the credit to pull it off.

This is a perfect example of why you need either cash or a strong track record with a bank.

If you had a hard money lender or a HELOC on another property you could buy it wish cash than get a note on it like a regular house.

A regular bank won't finance a house like this since it doesn't meet underwriting guidelines. If you were a seasoned investor with a strong track record a bank might give you a temporary portfolio loan on it. But that's kind of a catch 22 since most people who could don't need the money, look above for HML or cash.

You need to build up an ammo pile for good deals like this.

I wasn't intending a discussion on chapters of the low or no money down book.  There are numerous posts on that and didn't want to make a new one.  My intention was to see if anyone has ever done/thought of adding themselves to title to finance the deal once and with more favorable terms. 

@Kimberly Jones 

I agree that the methods you suggest are valid ways to finance a rental property. But if your name was on the title, would you still need to go through all trouble of financing it twice or create an LLC? Would a bank require you to put a down payment for financing a property you already own?

@Chris Field,

Having a lender relationship has it's benefits.  No doubt about it.  I am simply formulating a much simpler and cheaper method to finance an non owner occupied property.  The barrier is getting on the title.  In most wholesale or off-market purchases, this would not work due to delay of underwriting.  But if you had the time, would this work?

A situation I can think of that would work is if you were purchasing from a friend or relative.

I had a similar situation a few months ago where I was looking at a $300K house for $190K which needed about $10K to get it rent ready. Every bank wanted 15-25%?down regardless of equity. A friend in the industry who also invests in RE suggested owner financing (house was paid off) with a recorded mortgage. After 12 months, could do a regular refi. 

If the owner had a loan or HELOC, would a due on sale clause or something similar if someone is added to the title?

To put it bluntly no it wouldn't work, unless you find a unicorn of a seller. Most sellers who are selling cheap are doing it because they need the money fast and don't want to deal with the hassle of a FMV sale. If they wanted to deal with the mortgage hassle and long closing times they would sell it for $200k. Heck even a RE agent with half a brain could do a house like this for $150k-$180k all day long.

Someone like me will come in offer $2k more and close whenever the seller wants(next day?), all cash, clean.

Single family financing is super simple, making it hard just makes it hard it doesn't add any value to it. I buy stuff like this all the time, and push people out who are trying to do anything other than cash, clean, quick close. I only finance a property with a bank if I plan on holding it long term. Long term to me is at least 5-20+ years. 

YMMV but I think and my experience tells me your wasting a lot of time on a nice wholesale deal you can't afford. Just flip it to someone for $5k or $10k and move on.

Originally posted by @Chris Field :

To put it bluntly no it wouldn't work, unless you find a unicorn of a seller. Most sellers who are selling cheap are doing it because they need the money fast and don't want to deal with the hassle of a FMV sale. If they wanted to deal with the mortgage hassle and long closing times they would sell it for $200k. Heck even a RE agent with half a brain could do a house like this for $150k-$180k all day long.

Someone like me will come in offer $2k more and close whenever the seller wants(next day?), all cash, clean.

Single family financing is super simple, making it hard just makes it hard it doesn't add any value to it. I buy stuff like this all the time, and push people out who are trying to do anything other than cash, clean, quick close. I only finance a property with a bank if I plan on holding it long term. Long term to me is at least 5-20+ years. 

YMMV but I think and my experience tells me your wasting a lot of time on a nice wholesale deal you can't afford. Just flip it to someone for $5k or $10k and move on.

 I have and will continue to agree with you on your approach to secure deals.

In this unicorn situation I have time to finance it any way I chose. Without the cash, what beter way is there that doesn't involve financing twice? So far, in this unique scenario, no better option has been mentioned. 

If the seller is flexible, and it sounds like they are, you could purchase the house from them for $110k with $15k due to the buyer at closing. The seller gets their $95k, you have just financed the house with no money down, only paid financing fees once, and the LTV is still well within bank non-owner occupied parameters.

   If you chose to go Chris's way and look to wholesale it for quick easy money, I'm in the area and would love to take it off your hands!

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