All Forum Posts by: Aaron Byrne

James--there are a number of rehab lenders for projects like the one you are describing. Some big ones that have a national footprint are Civic, Kiavi and Anchor, with the firm I work for being another.

For the benefit of the forum, the standard model for these lenders is that you put some money into the deal up front as equity, plus enough to cover your closing costs. This is your "skin in the game" like Russ Scheider mentioned, to show you are vested in the project's success. 100% financing programs are typically not offered commercially, but by private individuals, such as connections in your personal circle or sphere of influence. The loan amount would then cover the difference you need to purchase the property. Once closed, you would need additional cash reserves to go out and complete a portion of the rehab before drawing down on rehab funds held by the lender. After you are reimbursed by the lender, you would use those dollars to complete the second stage of the rehab, get reimbursed again, and simply repeat the process for as many phases are needed to finish your renovations. While you will need your own cash to front the purchase/renovation and for reserves, rehab financing is a great way to leverage an investment project.

Good luck!

I agree with Jossalyn. If buying a property as an investment, there is little chance of securing financing at such terms, especially if you are just starting off in the world of real estate. That said, my opinion is formulated based on the professional market and not individual lenders. A HML, bank or other lending institution will want a down payment, but perhaps there is a personal connection in your sphere of influence or a local investor who would be willing to lend you money to buy an investment property with little to no money down. Just be sure to watch out for scams, as you have been doing already.

Best of luck!

@Dmitriy Fomichenko is a great contact for anything solo 401k related. Highly recommend. 

The bank is probably concerned about the change as it would, effectively, transfer title of the property to a new borrower (the LLC). I believe the company is considered, in the eyes of the law, an entirely different entity than yourself personally, and carries with it an entirely new set of lending considerations for the bank. I have heard that folks often quitclaim their personal ownership in the property to an LLC post-closing and just not tell the bank until they go to resell the property down the road. That is a potential risk you take however, as the bank would likely be in its right to trigger the due on sale clause if it ever found out since a transfer of title took place.

I do believe land trusts would be an exception to the due on sale clause. I have heard they are relatively simple to form, with the main items needed being: 1) a trust agreement forming the trust, and 2) deeds transferring title of the rental properties to the trust. I am not an attorney, however, and recommend you seek professional advice on the subject prior to moving forward. These trusts are legal in some states, but may not be in the particular areas of interest to you personally. There are also likely tax implications, so be sure to seek help from a CPA to fully understand those repercussions as well.

Best of luck!

I agree with Cory's advice. The lender typically needs to provide approval before any release of funds, so start there. Good idea to come ready to help streamline the process. Another point to note, did you and your lender come to an agreement about a phased breakdown of your scope of work? If so, I would refer back to that list and make sure that all the items are checked off/100% completed for the phase in which you are seeking reimbursement. Best of luck!

Something to add to the equation, since your IRA is a ROTH, the contributions (not earnings!) can be withdrawn from the account both tax- and penalty-free. Hope that helps you in your decision-making!

So sorry to hear about this. Unfortunately, the real estate industry has seen a marked increase in fraudulent activity over the past couple years. While there is not much advice I can offer for this situation, my best wishes to you and your wife and I hope you are able to recover the dollars. 

For the benefit of the forum, things to watch out for when dealing with scammers are: 1) double-check the email address used to send the email; 2) always be cautious of any instructions sent over email and not from a secure link/source; 3) read through the message in its entirety to spot any formatting errors or duplicate email signatures, etc.; 4) when in doubt, call the person in question using a number found online/another source to see if they indeed sent the message; 5) ALWAYS call to confirm wire instructions right before transferring funds, even if you called to confirm them before.

Hi Amanda,

Personally, that is not a deal I would pursue for my first project. Considering the extensive rehab, there seems to be potential for a lot of unknowns during the rehab that would eat into my profits or wipe them out entirely (like major unexpected repair items, overages in current budget, or increased holding costs as my renovation scope expanded or progress gets delayed...which is bound to happen at some level). For my first deal, I would personally look for a property at a higher price point (nicer asset/neighborhood), needs work in the dollar amount of no more than half of what I paid for it (less room for error and mainly cosmetic items), and has a reasonable spread based on comps after taking into account all expenses on a 6 month hold (so I can at least try to break even should unexpected circumstances arise). 

Also, I would never go into a deal without my own capital. While leverage is good, being overleveraged is not. Having my own reserves/equity serves as a safety net to fill gaps on the project where needed.

Either way, good luck! Everyone has to start somewhere and I wish you all the best.

For Chris' list, I would add in Forge Trust, Equity Trust, and uDirect. 

Also, I echo Ashish, Dmitriy Fomichenko is great and is definitely worth reaching out to learn how he can help.

Finally, once you have the SDIRA set up, there are a number of options for you to lend money via notes on hard money platforms. This saves you from having to draft your own notes and manage the underwriting/funding process yourself and make the investment more passive. Message me for more details if you are interested.

Good luck!

Completely agree with the above posts. I ALWAYS ensure the loans I originate have the lien position perfected against the underlying collateral for security purposes. I would say the vast majority of lenders extending financing to borrowers will seek to collateralize the underlying real estate as protection for their loan. Also, upfront fees are a big red flag. If they are not for an appraisal or credit report, I would proceed very cautiously as lenders, like most professionals in the real estate industry, are typically compensated at closing. 

Good luck!