I am in the process of getting my second property in Philadelphia. It will be my first via a hard money loan and my second purchase (first purchase was thru FHA loan a few months ago). I just wanted to get thoughts, ideas, and suggestions for getting this property.
The property I am looking at will be a duplex most likely between 20-70k. It will be a fixer upper (not necessarily a shell) that I plan to fix up, and refinance out of the hard money loan, and bring in tenants. I expect to take no more than 90 days to get the property occupied. I would also be able to pocket the difference after the home is refinanced. Most hard money lenders cover rehab costs if you are using a licensed and insured contractor. The contractor that I have used in the past does great work and is a family friend that we have known for years. He is licensed but not insured so a hard money lender may not cover them. I was going to take out 1-2 personal loans (depending on the bank or credit union) to finance the rehab/contractor costs and additional closing and out of pocket expenses and also include a little financial cushion for unexpected financial costs. These loans will be paid back at time of refinancing.
What do you think of this plan? I know it has a certain level of risk involved but my biggest concern is will I have trouble refinancing with a traditional bank if I have 1-2 personal loans out in addition to the hard money loan? Also, I have a registered LLC which may be what the hard money loan will be under so it does not affect my debt to income.
I welcome any thoughts, ideas, and suggestions!
most of the banks that I have talked with will only do cash out refi after 6 months of property ownership....
Before you purchase the property, know who will do the end financing. Some banks won't loan to an LLC that has not been in business for at least 3 years. This could jepordize the term of your hard money loan. Secondly, be sure that the property will appraise for what you need. Many lenders will only allow you to borrow 70% of appraised value. Will that be enough? Lastly, if your contractor is licensed, what is the cost of insurance? Is there a way to handle that? Just some thoughts.
I know a little about Philadelphia, what area are you investing in?
@Thurmon Cohen I have a registered LLC but it has only been in business since Oct 2012. My biggest issue right now is to find a bank that will refi me. I need to do more research of course in that regard but I called one bank in particular and they said that I would have to carry 12mos of existing mortgage history prior to doing a refi. I have only had my property for less than 3mos. I am also looking to see if it would just be more convenient to pay for my contractor to get insurance so he can do the fix up on the property for me.
I am looking into an area near the Olney section of the city. I have checked out a few properties in the city but I am looking for a possible property that is in a great area that will definitely appraise well after repairs. I am not looking for a shell of a property necessarily but something that needs enough work. I have heard that properties may not appraise for much if it is done within six months of the original appraisal (appraisals are usually good for six months)--not sure if it's true or not.
Im interested to see if this works. I was in a similar situation where a bunch of strange hurdles prevented myself and partner getting a mortgage - could go on for a while about that, but wont - so my partner got a home equity loan against her primary residence to finance the property (buy and hold), and I put about 20k in.
We got the property with the plan to refi out. However with the refi, the closing costs, i believe they said 3 points plus lots of other closing fees, would absolutely kill the cash out we were looking for.
SO - we are in the middle of getting a HEL against the property with a Investors Loan (from Provident Bank) Basically no closing costs, its a high interest rate 7% but we are getting 75% of appraised value(which they were conservative on!)
Would have liked to get more - we are cashing out about $10k so that obviously will be going towards the next house.
SO @Jessica F. if your getting hard money make sure your positive a refi - or in our case - a home equity loan will be enough to cover. Either way im curious to see how this goes. Good luck!
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