Flip loans offered by local bank

30 Replies

I have been in the buy and hold market for several years and a business partner and myself are considering flipping a few houses per year. We have done a good bit of research on the topic and it seems that many people are using hard money lenders that charge several points and high interest rates. I have a local bank that I have a good relationship with(many of my rental loans are with them) and they are now offering flip loans and I wanted to see what the more experienced people think about their terms.

15% down payment

5% interest rate

Interest only payments for 12 months

1% origination fee

They will also roll the repairs into the loan

In house appraisal done at the branch(no fee), the house needs to "appraise" for the purchase plus repairs.

The example he gave me was

Purchase price $125k

Repairs $40k

Total $165k

Down payment: $165k x 15% = $24,750

Loan Amt: $140,250

Monthly Payment: $584.38

To me it seems like a no brainer compared to hard money lenders. Has anyone seen or have experience with loans like this?

Dont walk, run to your bank and sign the docs. As J stated, this is a no brainier. Anytime you can reduce the cost of financing, you increase your spreads/profits.

Having relationships with local banks that will do this is great.

Only ONE concern: how fast can they perform? If you are making all cash offers or non contingent financing offers that need to close quickly, this could be a problem. Other than that, a great product.

I've never seen a bank loan with those terms for investors. 15% down is better than what many owner occupant buyers can get. I can understand the lender wanting to get to into flips, but not at 5% and 1 point. Even with experienced investors and great credit borrowers, there is a known risk on flips.

By lending at 85% they are leaving no room for error....by anyone. By rolling in repairs, they could be in greater than value, which makes no sense. What am I missing? When did investor lending get so competitive?

Are you sure the product is for flips?

Originally posted by Kristine Marie Poe:
I've never seen a bank loan with those terms for investors. 15% down is better than what many owner occupant buyers can get. I can understand the lender wanting to get to into flips, but not at 5% and 1 point. Even with experienced investors and great credit borrowers, there is a known risk on flips.

By lending at 85% they are leaving no room for error....by anyone. By rolling in repairs, they could be in greater than value, which makes no sense. What am I missing? When did investor lending get so competitive?

Are you sure the product is for flips?

This is certainly one bank I'm not investing in. If it was me and I had deals (which I don't) I'd have the paperwork in their hands already, while saying thank you very much can I have another? (I realize what the quote is about, but it seems perfect for this scenario.)

Originally posted by @Cal C. :
Originally posted by @K. Marie Poe:
I've never seen a bank loan with those terms for investors. 15% down is better than what many owner occupant buyers can get. I can understand the lender wanting to get to into flips, but not at 5% and 1 point. Even with experienced investors and great credit borrowers, there is a known risk on flips.
By lending at 85% they are leaving no room for error....by anyone. By rolling in repairs, they could be in greater than value, which makes no sense. What am I missing? When did investor lending get so competitive?

Are you sure the product is for flips?

This is certainly one bank I'm not investing in. If it was me and I had deals (which I don't) I'd have the paperwork in their hands already, while saying thank you very much can I have another? (I realize what the quote is about, but it seems perfect for this scenario.)

I had the same thought. Who are these people making high risk loans at low rates. And why are they allowed to run a bank?

@Will Barnard They can close the loans in 2-3 weeks which they have done for my rentals in the past. Not sure if that would hurt when competing against cash buyers or not.

Kristine Marie Poe It is for flips loans, and I thought the same thing as you. I didn't inquire about it, the SVP of the bank approached me one day while I was in there and he remembered I mentioned flipping houses several months ago . It is a VERY small bank with only 6 branches in the entire state(don't know if that means anything or not). One thing that is interesting they don't do 1st mortgages at all. I thought that was odd but they said they are so small it is not cost effective for them right now to have an entire loan processing department so they are concentrating on all other types of loans. My rental loans with them(I have 8 loans) were all 15% down payments as well.

@Bill Sargeson Call me slow here, but It just hit me that putting a down payment on the loan is actually going towards the purchase price/repair amount of the property. Just the lender wanting you to have some skin in the game. Every time I saw terms like that I would say to myself "Self, why would I give the lender $20k in order to get a loan if the reason I am coming to you for the loan is because I don't have the money in the first place".

For some strange reason I didn't view those hard money or rehab loans requiring a down payment as the same as a normal mortgage.

Brain fart!!! Sorry, I just fealt the need to share that.

@Bill Sargeson , do you mind sharing the name of the bank? I will be relocating to NC soon and would love to see if they make loans in the area I will be living in. Thanks!

Originally posted by @Brian Jobson :
@Bill Sargeson Call me slow here, but It just hit me that putting a down payment on the loan is actually going towards the purchase price/repair amount of the property. Just the lender wanting you to have some skin in the game. Every time I saw terms like that I would say to myself "Self, why would I give the lender $20k in order to get a loan if the reason I am coming to you for the loan is because I don't have the money in the first place".

For some strange reason I didn't view those hard money or rehab loans requiring a down payment as the same as a normal mortgage.

Brain fart!!! Sorry, I just fealt the need to share that.

It does appear odd on the surface, but what you aren't seeing is that the down payment does come back to you but not at closing, it normally comes back as the rehab progresses or after rehab. Bill hasn't said anything about funds control. Hard to believe he will walk out of closing with the difference between the loan amount and purchase price, $15,267 (140,250-125,000).

MY GOODNESS. Send them here to NJ.... I do not mind banks sharing in my profits after all it is there money (per se) Great deal IMHO. but remember keep your numbers tight and always expect the worst... It was only 4-5-6 years ago the world nearly ended. Great product and best of luck !

@Account Closed Thanks!

@William Donaldson I will send you a private message.

Account Closed Rehab funds get disbursed as work is completed. So I don't walk away with any money at closing.

Originally posted by @Bill Sargeson :
@Will Barnard They can close the loans in 2-3 weeks which they have done for my rentals in the past. Not sure if that would hurt when competing against cash buyers or not.

@K. Marie Poe It is for flips loans, and I thought the same thing as you. I didn't inquire about it, the SVP of the bank approached me one day while I was in there and he remembered I mentioned flipping houses several months ago . It is a VERY small bank with only 6 branches in the entire state(don't know if that means anything or not). One thing that is interesting they don't do 1st mortgages at all. I thought that was odd but they said they are so small it is not cost effective for them right now to have an entire loan processing department so they are concentrating on all other types of loans. My rental loans with them(I have 8 loans) were all 15% down payments as well.

By no first mortgages, do you mean no purchase-money owner occupant loans? They will be lending in first position on your loans.....

I totally get a small bank staying out of the consumer loan business. Lending to landlords, however, can be some good, secure money. Lend to the right buy and hold investor and you're lending to a business with the advantage of easy to liquidate collateral. But lending on flips at 5%? Wow. Get something under contract and get over there and fill out an app. While you're there, find out if you can get an unsecured line of credit too.

Bill,

I live in NC and I would love to know which bank that is.

listen to those crickets chirping!

@Cal C. Can you please elaborate on your comment?

@Bill Sargeson sorry didn't see your PM comment to William Donaldson. Thought you had mentioned something that people would be very interested in and then didn't respond to requests for detailed info. That happens occasionally on the board and is a bit frustrating.

The terms your bank has laid out are OK. Based on my experience with bank financing flips i would be willing to bet you could get around the 15% down payment by presenting a well thought out business model and buying process to the bank. After all, you will be all in at 70-80% of value, what do they need the down payment for?

@Cal C. Oh yeah I completely understand that people will throw out information with no follow up. And I understand this info seems to good to be true(I questioned it myself). I have had several private requests which I replied back to each of them. I just didn't want to give out the bank info on a national forum and they get crushed with phone calls, especially since they a very small bank with limited staffing.

@Bill Sargeson

You certainly understand the PM function better than I do. I didn't even think of using it to get the bank out there. I think @Sam Craven may be getting a few PMs of his own. :)

First thing I did after reading your post was check your location. Damn! Not near me in CA... Good luck, sounds like a great deal for flips, I'd jump on it if I could, better terms than HML, that's for sure.

-David

Hi Bill,

I sent you a PM. I am in NC and would love to know the name of the bank. Thanks!

The logic of it makes no sense in terms of the benefit vs risk to the bank. Lenders have always explained to me about how they have to evaluate the "layers of risk" versus the upside of the profit.

I just don't see that here. Its a flip so they won't be getting interest for very long and its not like you'll be rolling the loans into perm loans with them after you're done like a buy and hold investor might be doing.

I could see the bank doing this for a buy and hold investor if they were going to roll the loan into a perm loan with the bank after it was rehabbed and rented.

But what is the upside here? 1% fee? Maybe the bank would be comfortable doing that for you because you already have loans with them and they're looking to help you grow your business so you become an even bigger customer.

To me, thats the only thing that makes sense in terms of their angle in doing something like this. Provide a great flip loan product for you so that you stay with them. They help you make more money on the flips so that you can use those profits to grow your portfolio of buy and hold units and so that you will use them for the perm loans as you continue to add more properties.

That would be the only thing I could think of in terms of making any sense from the bank's standpoint. Maybe they don't see any risk with you at all given the equity and/or cash you have in other properties or your account with them. So they view this as relationship building.....

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