All Forum Posts by: Mark Safrin

It seems logical to not purchase and rent without reserve cash if you do not have tenants lined up. Especially if you don't know why the space is empty. You already want to have some reserves in case of emergencies.

Can you wait for the building improvements you refer to until you have some tenants in place? This might give you some cash reserves?

Most HMLs will also want you to have some skin on the game. We for instance will not lend more than 90% of purchase. If you are rehabbing you might also need more cash to start as, for instance, our rehab draws - though funded at 100% are paid in arrears as you complete each stage. Not to mention loan costs such as appraisal fees and of course reserves to service the loan payments until you can flip or rent.

As to when is the best time to get to know HMLs or a broker? Get to know a couple that seem good (or a broker or two) now. Then when you are getting close to having a property under contract and have some numbers and a potential address to present, contact them, submit a loan application form and see which loan terms are ones that are most acceptable to you. They should be able to give you terms the same day you ask. This may help you decide whether to take that property under contract. 

Best wishes on your future endeavours.

Daniel, conventional financing will mean a lower interest rate and costs but usually much longer closing times and eligibility requirements such as income.  Conventional funding may be reluctant to fund rehab costs.

Hard Money Loans will be asset based (that's what Hard Money means, security against Hard Assets, in this case property) and will be at a higher interest rates and will have closing points. On the other hand there is no income verification or tax returns required. Hard money lenders will also be happy to fund your rehab/renovation costs. HMLs can usually close quickly. In our case its usually 2 weeks or less for SFRs.

Hard money loans are usually 12-24 months, interest only (non Amortized). Another type of loan we offer is a 30 year fixed loans, fully amortized. This is great for refinances.

So really it depends on what you need. Good interest with slow closing and lots of documentation/eligibility requirements or High interest plus points, fast closing and asset based not income based.

I have come across lenders that offer 100% financing. Have not experienced the one mentioned but here is something to look out for, just in case it has the same issues I've seen elsewhere:

1. Rates tend to be 12-15% plus around 5 points (as opposed to say a more reasonable ~10% + 2 or 3 points).

2. The LLC on the loan is usually owned by the lender, not the borrower. I'm no lawyer but I'm told that this can mean that no foreclosure is necessary. While they of course want you, the borrower, to service the loan (Hey its a profitable interest rate!) if you do not make your payments then you will merely wake up one day without a property or any equity even in all that nice rehab work.

Once again I have not dealt with the lender mentioned, but as ever - Caveat Emptor!

I can only speak for ourselves but for newbie rehabbers we will often adjust the 75% of LTV (As is value) cap on the loan down to 65%. This is to keep our underwriters happy for loan risk mitigation. The 100% of rehab money portion of the loan is unaffected. So we are happy to lend to newbies.

Once you have a couple of rehabs under your belt and presuming a reasonable credit score, the full 75% of LTV can be considered.

Alas even we Hard Money Lenders groaning under the weight of all that cash awaiting lending out still have people in turn we need to keep happy.

Then there is the $75K minimum that Stephanie mentioned. Lending in OH does tend to bumping up against this.

Best wishes on your endeavors. 

 @Cameron.

https://www.blog.dropmodel.com/blog/the-70-rule-ex...

Cheers.

Did you actually receive a copy of the appraisal? It would be interesting and perhaps in this case absolutely critical to know exactly what "horrible things" the appraiser saw that turned him off.

Sq ft and number of bedrooms don't mean much if it's (let's exaggerate here slightly) a roach motel built mainly out of asbestos where even the giant termites are jumping ship due to glowing chemicals bubbling up from between the radioactive floorboards. ;)

@Nicholas Bohorquez You likely will need to borrow or find an investor.

Does this mean you have the money to purchase? Many Hard Money Lenders who lend in your state will also be interested  to fund 100% of the rehab portion of your rehabbing project. But in draws, in arrears once you have finished rehabbing each stage.

So you will likely need to have money on hand for at least the first draw plus extra for cost overruns and emergencies. 

How are you funding the purchase itself? Or did you mean you don't have any capital at all and are asking how to purchase and rehab without any money down?

HML's would likely be in the realm of ~10 and ~two points.

If you lean towards going the HML route, I would be pleased to discuss the details.

Cheers.

 Which state and what size loan is required?