Developer · Los Angeles, CA · Member since 2010 · 101 posts · 14 votes
We are currently all cash buyers of distressed single family houses. All of them need some degree of improvement, like landscape upgrades, carpet, paint, some appliance replacement...and generally looking to spend about 20% maybe 30% of purchase price on improvements.
Wondering if anyone has had any success getting financing for the improvements. We can use cash for them but obviously would prefer to get a loan to get more mileage out of our money.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
16y
I'm not quite sure what you mean by a "home improvement loan." People often borrow against their house to do improvements. The loan, though, is typically either a home equity loan (second mortgage) or a home equity line of credit (HELOC). I don't think anyone is doing either of those types of loans for investment property.
Banks used to do "construction loans" where you could borrow money for both purchase and repairs. These are also hard to come by for investment property.
Hard money lenders, on the other hard, are pretty easy to come by. They will typically lender based on the ARV - after repaired value. The maximum LTV is typically 65-70% of ARV. Realistically, that's good enough because if your purchase plus repair is more than 70% of ARV, you're paying too much.
Some will want to see some of your cash into the deal. But sounds like you have cash, since you say you're paying cash. Sounds like you need 20-30% of the purchase price for repairs. Assuming your purchase plus rehab is 70% of ARV, that would imply you're paying about 55% of ARV and needing about 15% of ARV for repairs. If that's the case, getting a hard money loan for 20-25% of ARV, which would cover your repairs and then some, should be easy. You put your money into the deal and you have what you need.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
16y
I would think you could get financing relatively easily on a house that you buy for cash assuming you want no more than 70% of the actual purchase price. When doing a refi a few months ago, most banks I spoke with were willing to do a loan like this. Assumes you have good credit and enough income to show a good DTI.
Developer · Los Angeles, CA · Member since 2010 · 101 posts · 14 votes
16y
Now how does it work if the organization looking for financing is an LLC? Would the bank ask for credit and income statements from the people within the LLC? Or would the collateral be sufficient?
Or could one just refi the houses and pay cash for the improvement costs?