Contractor · Eureka, CA · Member since 2015 · 101 posts · 64 votes
I have a property in California I've owned for 3 years currently in the sale process and looking to net around 120k after closing costs. I am younger and a carpenter by trade looking to get into BRRRR'ing out of state. I anticipate hitting issues with the refinancing aspect as my credit leaves something to be desired. I guess a better question might be (without getting too personal about my credit score), what is a minimum or appropriate score to have for refinance in order to not get laughed out of the office of your local community bank lol
If I purchase a property completely for say $60k, then another for $20k and put the rest of the money into it in rehab, could I refinance with the property I own outright as collateral? What are better strategies to begin? Buy a collateral property, then buy a fixer that is owner financed with $2k down and go from there?
@Zack Thiesen I would recommend not going to a local community bank. Banks tend to be a lot pickier on credit scores than other lenders and have higher interest rates. General rules of thumb are to make sure that your utilization rates on trade lines are less than 50%. Less than 30% is ideal. And of course, late payments don’t help (again, these are just general issues I see a lot when looking at credit reports). Depending on your situation, maybe consider charging your monthly expenses to a credit card and then paying it off every month
@Account Closed - I've seen this situation a lot and luckily you have a few options:
1. Don't assume you won't qualify for a traditional mortgage - visit a local bank and walk through the necessary steps to either qualify or disqualify yourself.
2. Find a local commercial lender - they loan money differently than conventional mortgages and credit is more flexible. Additionally, contrary to popular belief, commercial mortgages are MORE competitive in terms of rates than conventional right now. We just were approved for a 3.9% 5/20 loan through a local bank.
3. If neither of the above options work (or even if they do) - approach future properties with the possibility of seller financing. I've put together various 0% interest seller financed loans and they are my favorite investments.
4. Finally, and often my least favorite, find a partner to invest with you on your current property. Determine proper ownership interest and spell out a really clear operating agreement to set expectations right. This can be very rewarding but has to be approached carefully.
Why not work on fixing your credit? I would talk to a credit repair company or a lender who could provide suggestions on how to fix your credit. They should be able to look at the derogatory marks and offer suggestions in your case on how best to fix the score to be able to qualify for traditional financing.
If you know your credit is not the best I would talk to a credit repair group like David suggested. If you need a suggestion on who to use please reach out and I can give you one.
Then I would follow Kase's recommendations and talk to local community bank. They are often more flexible & competitive then a Chase or Bank of America. I would recommend looking here to find a local independent community bank.
If you are not having success still you can look at hard money. A lot will go on experience, so the more you do the rates will come down when it comes to bridge/rehab financing. They will do a cash out financing for 30 yrs but the rates are going to be more expensive since it is hard money. If you get your credit repaired then these rates may look better.
@Zack Thiesen I would recommend not going to a local community bank. Banks tend to be a lot pickier on credit scores than other lenders and have higher interest rates. General rules of thumb are to make sure that your utilization rates on trade lines are less than 50%. Less than 30% is ideal. And of course, late payments don’t help (again, these are just general issues I see a lot when looking at credit reports). Depending on your situation, maybe consider charging your monthly expenses to a credit card and then paying it off every month
@Kase Knochenhauer Thank you for all the suggestions! For commercial lending, do the purchases need to be multi-family with a min # of units or can you buy SFR's?
And seller financing is something that appeals to me, definitely something to watch for.
With regards to commercial, if you are purchasing a property in an LLC it doesn't matter if it is a SFR or MF. Banks are still going to look at the guarantor in the LLC. They will see your credit score and will do a dive into your personal financial condition. If it is a commercial loan through a bank then you will not get a conventional mortgage that goes out 30 yrs. In most cases it will be a 5, 7, or 10 yr that will either balloon or become variable rate at the end of the term.
@David Kazarian Thanks for the reply. Can I do business with them on SFR's if not incorporated? I understand that financing and insurance rates are not as good with commercial but again, that is the recourse for the un-stellar credit. My credit really is not that bad, either, I was just curious how strict the lending climate is these days. I do appreciate the comments about how to fix credit, but I am well aware of that process. I have a feeling if I do the leg work in finding even conventional residential lenders it wouldn't be an impossible feat to find one. It wasn't the first time I did it.
I've yet to do my complete due diligence on this separate issue of LLC's, but it is certainly something I will look into more completely. Thanks again David!
I would think so but things might be different from state to state. We can talk offline and see what your goals are. There is benefits for having it under a corporate structure. One of the main reasons is liability.
@Zack Thiesen since you are a tradesman I would definitely create small talk with your clients! You don't know if they are getting work done so they can sell the property, or fixing it for tenants. We ( my fiancé and I) recently just closed on a duplex that started out with that same situation. He also did owner financing. It's worth a shot!
@Christian Manhard Good tip! I will be BRRRR'ing in another state than where I live now and where my client-base is, but certainly a lot of good opportunities have arisen in the past from making small talk with them. There are even good deals here occasionally, especially for CA, but I am looking for even more favorable numbers. And congratulations on your recent closing!