So im currently thinking of putting a single family property under contract.
Here are the numbers
Purchase Price: $155,000
I recently House hacked my first property in New Jersey.
Because of this, I am limited on money to invest.
I am planning to use Private $ loan for the full purchase and rehab @ 10%.
My biggest fear is if the property gets appraised for less than the 325k Comps i get from my realtor (which I will also do due dillegence and confirm those #’s) and I am unable to cash out refi.
Does anyone know the process of private $ and How I would be able to convert to a conventional loan if im unable to cash out refi and pay the Private Lender his $ ?
**I do not have the property under contract still must do an inspection + get a estimate on repairs from a GC, so even though I feel the repairs would come in less, thats pretty much the most im willing to go unless theres room for negotiation on the purchase price **
@Andrew Galeano Private money has no standard practices. What makes it private is that it is typically an individual who has extra cash to lend, not a company that has multiple people's money to lend. When you are lending just your own money there are a lot less regulations and every person will structure it slightly different. Some may be willing to go long term. You will need to talk with each individual about it.
And to add on to what just about everyone will say, a private lender is someone private that you know from a REIA or family/friends. If they are advertising, they are a hard money lender. Either way, just ask what they offer.
@Ryan Blake yeah I actually met him at an REIA! Thanks thats helpful!
Well, you have to ask the private lender what his process is. There is not set process. You just deal direct with the private lender and negotiate a loan. That is it.
If you want to know how to qualify for a conventional loan refi, go to local banks and ask them their criteria. Tell them your plan and given that plan, what will they require to refi at that time.
As far as your fear if it isn't worth 325K. Only you know how accurate your numbers are and no one knows what issues you may run into.....but if you end up with a property that you put 225K into and it is only worth 275K or you can't refi the way you want, then you sell it, pay the lender and walk away with a nice profit. No big deal.
This seems to be more of a refinance question than a private money question. Private money will definitely help you acquire and rehab the property, but you would do best refinancing with a conventional lender. Typically lenders will let you pull out up to 75% of the equity. Since your all-in number is only 69% of the ARV, you should be in good shape to recoup your money even if you appraise for slightly less than $325k. Conventional lenders typically require the property to be cash flowing (rented), and seasoned for at least 6 months.
Hope this helps.
@Andrew Galeano As Eric mentioned above, your best bet is to go to a local bank and ask in advance what their criteria would be for a refi. You should be able to pay for an appraisal in advance to determine the ARV.
I've done this a number of time when getting purchase + rehab financing from banks; it was required to do the ARV appraisal in advance.
As a side note, although it seems like you already have your financing lined up, check around to smaller, local banks in your area to see if they're do the purchase + rehab financing (ask for the commercial lending department - it shouldn't matter that it's SFH, usually commercial loans are held in house by smaller banks).
They might be able to do it at a better rate, and usually they'll offer loans that convert automatically to a standard mortgage after the rehab is finished. This would eliminate the need for a refi and an additional set of closing costs.
@Tom S. Hey Tom,
How would a local bank lend me the full purchase price and rehab? I know theres such thing as a FHA 203K but I wouldnt be able to do this because i recently FHA'd my current house... or would I have to put down the 20% and they may lend on the repairs?
even if the bank doesn’t allow me to finance and repair on their loan, would they allow me to pay for an appraisal for the arv? If I tell them im going to rehab this property and I would like to refinance with them ?
@Andrew Galeano Just call around to banks and ask if they have purchase + rehab loan programs. Note they're not going to lend the full purchase price, you have have to put something down (for me 20% of purchase + rehab, and then after I did a few projects, they only required 20% of purchase). The nice thing is that it's one closing, the loan converts to a normal loan after the rehab is complete.
Yes, you can ask about the ARV appraisal especially if you plan to refinance with that bank.
Again, I've had the best success with smaller banks - under 10 branches, that will keep the loan in-house. What's great too is that you build a relationship, so easier going forward.