All Forum Posts by: George Despotopoulos

It's fine to go into a meeting to gain some knowledge and insight. Financing is one a huge piece of the puzzle of real estate investing. For example, some people won't be able to qualify for financing with lenders for longer term loans that are generally associated with buy & hold deals/rental properties. This would obviously then impact their investment strategy and they would have to look into a shorter duration loan with higher fees and interest rates aka hard money loan. Generally you can still take out a hard money loan and refinance out of it. But then there's increased risk and fees. It's not a given that a lender will refi you out of a a hard money loan. 

It's acceptable not to have a deal in mind. The individual you meet with should give you all the information you need so that you can make an informed decision. And hopefully, you will have a good enough interaction with them that you'll want to go to them for your next deal.

This is contrary to most of the posts but if a lender needs to incur certain expenses to evaluate a deal, or borrower's financial situation, then asking for a fee to do so may not seem so farfetched. Many lenders have an application fee early on to cover costs incurred to underwrite the loan, such as pulling credit and running a background check. 

I would ask to have in writing what the $250 will go to and if it is refundable or can be credited to you at closing. 

Hi Alexander, congrats on getting involved at such a young age! That is definitely admirable and inspiring to others out there. 

As an aside, I would definitely advise looking in the Michigan market as well. Great rental yields. 

1) I would partner with your professor and form an LLC. LLC will give an added benefit/protection.

2) Really depends on your FICO/credit score. If you're above a 600 you should be able to secure financing. Investment property loans differ to residential. Expect higher fees. But do try to take advantage of big banks, local community banks, and/or credit unions. Your ability to secure financing may vary depending on whether or not you form the LLC though, some lenders do not lend to entities. Regardless, at your stage and young age, I would definitely talk to as many lenders as I can. As a student, I'm certain you can find the time and you'll only benefit.

Another issue is that most bank's have a net worth requirement and want to know where the downpayment is coming from. This will be easier to explain if you partner with your professor in an LLC as a gift cannot comprise 100% of the downpayment.

3) I think each scenario will be new and unique to you. Meaning if it's a fix & flip, if it's a rehab project, buy & hold, or ground-up...it's all new to you. Developing a vacant lot is definitely much more difficult and intense project. This may also be difficult to obtain financing for. I would keep the option open and pitch it to lenders (credit unions/local community banks will be the goal, with private/specialty lenders and hard money lenders secondary). 

4) This is something tough to discern. It's pretty much up to you two. Without the cash there's no deal but without your work and execution there is nothing as well....I would propose 65/35 in favor of your professor. This is merely my opinion. The rationale being it shows respect and appreciation to the professor who is giving you this opportunity, while still valuing your hard work. Really even if you get 25% that is a win. You're getting a tremendous opportunity here to gain some significant experience at such an early age and do not have to risk any of your own money. 

Hey Jonathan, first, best of luck on this new endeavor! Investing is exciting, and challenging; great to see that you're here to learn more. 

I do not have much experience with portfolio lenders specifically, hopefully someone could chime in. I can give general advice here. 

You did not mention the type of deal, but I'm assuming it's going to be buy & hold. There are a few basics to know and factors that will affect your rate. Loan to value (LTV) is the maximum loan amount a lender will lend against the property value. Many lenders go anywhere between 75%-85% LTV. This means the rest of the purchase price comes from you. Usually the lower the LTV, the lower your rate.

Portfolio lender's may differ, not sure if they'd look at your income, debt to income or the debt service coverage ratio, which is usually measured as net income from the rental property divided by the loan payment. Some have a minimum of 1.1x, others as high as 2.0x DSCR.

You should know their minimum FICO and how they arrive at your score (average of 3 scores, lowest of 3, etc.). 

Other than that you would want to know if there are any pre-payment penalties, what their fees are (application fee, origination fee, is there an appraisal requirement, etc). You should have an understanding of all the fees that get passed to you at closing that come from the lender and also factor in title costs.

That's pretty much what I can think of at the moment. If anything else comes to mind I'll follow-up. Feel free to ask any questions.

Non-bank/non-traditional lenders tend not to look at DTI or the number of loans you have out.

The general focus is on the property value. For buy & hold deals they will look at the property's income.

I agree with @Brandon Battle. 

With hard money, the focus is on the asset/property. Usually credit is pulled and it's to see things like judgments/liens, but if you've paid it off it should not be a problem. This is of course lender specific.  Usually the major thing is a foreclose or bankruptcy within the last few years. But again in hard money, depending on the lender and your deal, this may not be an outright denial. 

I would think if you go around with a good enough deal you will be able to obtain hard money financing. The issue may be refinancing out of it, if that need comes about. But, you could always talk to the same lender, or other lenders after disclosing your situation, and ask if they'll refi you out of the hard money if need be.

If you're trying to do a term/rate refi you could do it asap theoretically. I would always have a lender lined up though and take them through the scenario to make sure. Different lenders will underwrite to different values. Some may look @ the ARV the first lender lent on and disagree. They may feel that it should be purchase price or purchase price + documented renovations. Every lender varies, it will depend on their underwriting guidelines.

Best thing to do is talk to lenders for the refi prior to committing to the hard money and/or go into hard money able to make those payments each month and taking care of the balloon @ maturity.

@Chris Low @Rhonda Wright another option is trying for a cash-out refinance. Rate will probably be higher than your recently refi'ed rate but you'll be able to pull cash for the short sale. 

If you're doing a cash-out, it's usually a minimum of $50K and only up to 70% LTV.

Let me know if you have any questions or need help.

Derek, when you're asking for a private lender, do you mean an individual with capital to finance most of the deal? 

Reputable lenders work under the following criteria/requirements: decent FICO score (above 600), 75-80% LTV, minimum loan amount of $50K, and a minimum DSCR on the rental property.

100% financing, or anything near that, if it is legit will cost you in points and high rate. It's more risky and will be a short term. 

Another option is to partner with someone, or multiple people, in an LLC and invest through that entity. Have an attorney draw up the corporate docs.

Hey @Samuel Carmichael good questions throughout. 

We typically have go to title companies on hand to use for deals. It's great to use HML to close fast, but keep in mind the closing costs associated with your plan. HML is short term interest only for 12 months. The rates generally are 10% - 14% with 2.5-5 points at closing (depends on the lender).

Some lender's have a seasoning requirement, meaning they won't refi you out until X months (we're 6months but I have seen others @ 12). Typically this seasoning period is reserved for cash-out refis, not rent & term refinancing (like the two lenders you found). But you always need to make sure that's the case as nothing is uniform in this industry if you go elsewhere. 

When you cash-out you should consider the max LTV as well. Many cap cash-outs at 65-75% LTV. There will be closing costs again, should be less than hard money, but expect 1.5-2 points at closing.

Overall this plan, of hard money then a rate & term refi, does work. The concern for you is the fees associated to close each. In addition to the origination fee of the lender, you have the title companies fees/costs.