financing for distress properties

24 Replies

Hello BP 

I have a Question when it comes to purchasing distressed or properties in need of rehab.

We currently own a 5 unit in Schenectady,NY. The property is free and clear. Originally, our first approach was to refinance the property and use the funds to purchase another. Refinancing seem to be the way to go.

My question is: Is hard money or private lenders the only way to purchase properties in need of some rehab or are there any institutions that will lend to ARV with traditional rates?

Thank you all in advance.


If you have a solid rate with a small portfolio/commercial lender, they may extend a line of credit to you for these types of projects OR lend a certain amount of the ARV to you. It is possible that they'll fund the purchase price but not the rehab as well.

I'd suggest developing a relationship with this type of lender, possibly by doing the refi on your 5-unit with one. This relationship won't happen over night, but it's definitely possible.

We have three portfolio lenders in our area that will fund rehab deals at four and a half to six percent interest rates.

Two of the lenders will lend at eighty percent of  purchase price and will lend rehab money on top of that, not to exceed eighty percent of after repair value

Our preferred lender goes one better, we buy the property for cash, while we are waiting to close, we give the bank a list of our renovation plans including costs and purchase price. The bank sends out their appraiser to do an ARV apprasial. They get all their paperwork ready while we close with cash. Now the bank is doing a refinance instead of funding a purchase, they will lend to us 80% of after repair value. So if we are buying for 100,000, renovation budget 50,000, ARV apprasial 220,000 the bank will lend us 176,000.

This apparently is not typical from watching the forums, but with three local banks doing some modified version of it, I suspect if you talk to all the commercial loan officers of your local independent banks, you have decent income and credit you will find similiar deals where you can get money at 5%-6% to do rehabs if you search a bit. 

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I would say the same as everyone else & find a good bank that offers portfolio mortgages. I talked to one that told me that they will give a line of credit on places that you already own ..up to a certain percentage of value. Then you can use the line of credit to buy & rehab the house. (You get the advantage of paying all cash for the deal) After it's rehabbed you then go back to them & they will transfer it into a regular loan so you have it under a fixed interest rate for a period of time and your line of credit back. Something like that would be how I would do it.

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Yes, but I can only speak for our area, although I cant imagine its only done in a small section of Ohio.

Re: Funding out of state. Our main bank will only do loans in ohio, I asked about them funding a deal in Fla, and he said they are not able to lend outside of Ohio. One of the banks I referred to will only do these type of loans in the counties where they have branches.

A side note, it is more important to find the right commercial loan officer than the right bank. 

These are not typical loans that every loan officer can do, or is familiar with even at the given bank. Our current "bank" was not doing any of these type of loans until they acquired our "loan officer/branch manager" from another bank. 

Another bank that we were doing these type of loans with seven years ago would not do them anymore for us when our loan officer moved to a different bank. We moved banks and followed the loan officer who was able to do the same kind of deals at the new bank.

It pays to find a good loan officer

@Eddie Marcano   this bank that I mentioned was one in Kansas City. They are a  small local bank & they told me they hold their own loans which is why they can offer different options of financing. I talked to the Vice President there & he told me they don't even advertise but rely on word of mouth. I'm pretty sure they don't loan in our area but I'm happy to give you their info if you want. I would call around a bunch of small local banks & ask. The big banks aren't going to offer this kind of service since they sell their loans & therefore the loans have to fit within a certain box. 

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@Eddie Marcano My portfolio lender is regional: they loan 75%LTV on non-occupied investments/ 80%LTV on residence. They also do re-fi's and have a construction loan that is 100% reimbursable per a draw schedule. 1 point lender fee and APR of 4% on an ARM. Just finished one this month..

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@Eddie Marcano  

A renovation loan or construction loan allows you to finance the purchase price as well as the rehab. You would be able to finance 70-80% of the project as long as that amount does not go above 70-80% of the ARV. This option would require 20-30% cash out of pocket for the deal but the nice thing is you can get a 30 year fixed rate loan.

There's a place called Visio Financial that offers financing for distressed properties.  However I think they deal at hard money rates (or credit card rates) but they do lend specifically if properties need work (which some conventional lenders will not).

@Dawn A.  

Thank you for joining. I actually was contacted by Visio Financial. Have you used them for any of your projects, are they reliable. Thanks

I have not used them, no.  I just got a few emails about them.

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