All Forum Posts by: Sasha Mohammed

@Account Closed i wouldn't say 2 points is high, it's actually fairly average. It totally depends on quite a few factors; mainly, loan size and the amount of time the broker would need to spend on your file. 

if it's a small loan amount, that would contribute to higher points, because 1% of $100k is only $1,000 vs 1% of $1m is $10k. 

It may seem high because borrowers are conditioned to look for the lowest rate and the lowest cost. And since most fannie/freddie consumer loans are typically priced-in with the broker being paid on the back-end through the lender, the borrower is often not aware of what the broker is making on the file. 2 points is totally normal, but may seem high when you're paying it out of pocket vs. the lender paying it on your behalf.  

you will find discount brokers all over the place, but you often get what you pay for. I wouldn't shy away from this because of the fee. Don't be afraid to ask the broker to reduce, but also don't be surprised if they aren't willing to. Some files can take an enormous amount of time, and they don't always close. in the event the deal falls out, the broker walks away empty-handed despite the work/ time/ energy and effort put-in up until that point. 

Personally, I would walk away from this deal. From the little info i have, it sounds like the sellers are well aware of these issues, as they may have experienced them themselves at some point, and are now trying to rush you to close. 

Granted I'm just basing this decision off of what's in this post. C4 is not-lendable with most traditional mortgage lenders (i'm pretty sure they need C3 or better), and unless I had a clear exit strategy, I wouldn't feel too comfortable to step into a seller-financing situation. Especially if you're new to investing/ rehabbing, and especially if the sellers are already showing you that they're not flexible with things. 

Just my opinion, take it with a grain of salt. 

If you plan to keep all of these long-term, you could do a portfolio loan and combine all 6 into one portfolio. it sounds like they're cash-flowing, which would be the majority of the "qualification" on portfolios, and you could take cash-out based on a combined LTV on all 6 of them. Since it sounds like most of the debt on the properties are not even on-title (business lines of credit), you'll have access to the most funds as a lump-sum this way through one transaction as opposed to individually refinancing them.

Just a thought :)

Is this a question more about legalities or about what you can get away with? @Kyle J. is right, private money doesn't usually show up on your credit report. It will, however, show up on title of that property as a lien, but it does take some time for it to appear. 

If the private money lender requires a credit pull, the credit inquiry could show up on the purchase-lender's side. If they see it, they will ask for an explanation to make sure no new lines of credit had been opened as a result of that inquiry. 

** Not-disclosing this private money loan to the lender working on your file could be considered mortgage fraud, so I don't recommend that.**

With that said, aside from the credit report and liens on the other property, the lender could also see the deposit/wire from the private money show up in your bank account (they will be asking for bank statements for your down payment and reserves) and if they see the deposit, they will ask where that money came from. You'll have to "source" the deposit if it's non-payroll.

Its probably smartest to wait until you close your purchase to move forward on your private money loan. 

Depending on what you're using the LOC for, there are different options.

Rehab lenders and construction lenders offer Lines of Credit. I'm assuming since you're posting in BP the funds will be used for RE. 

They would be personal guarantee, since they're not collateralized by any one specific property. 

Find a broker who specializes in these loan types and can guide you :)

I don't see too many investors, even private money investors, willing to fall into 3rd lien position, especially if you're trying to max-out your LTV to 100%.

You could go traditional mortgage to qualify for the purchase, and possibly find an investor willing to go 2nd lien position -- to what LTV they're comfortable lending up-to in 2nd lien position is the question. the higher you go in LTV, the more difficult and pricey the 2nd lien would be. with that said, I have seen 3rd lien positions as well, but not exceeding 65% LTV.

I suggest finding a lender that specializes in rehabs. Even as a first-time investor, they'll likely end up giving you more funds to play with than trying to structure you're own financing across multiple investors. You'll find that you can get something like 75% acquisition and possibly 90% -- or maybe even 100% rehab budget (or something along those lines), even as a first time investor. You'll just need a clear exit strategy and you will carry slightly higher interest rates than a more experienced fix-and-flipper. 

The benefit to this that although you may be paying more to borrow the funds, it would be a lot less headache than trying to piece it together with different investors. Also, with rehab lenders, you typically end-up being able to borrow over 100% of the property's as-is value. They base LTV off of your ARV, or After Repair Value. Not as-is value.

In my experience, you'd be hard-pressed to find even 100% financing if you did find investors willing to go in 2nd and 3rd lien position, let alone OVER 100% as-is value. 

@Melanie Heiges, There are lenders out there also that specialize in rehab/ fix and flip type loans. Their rates are a bit better than hard money, they often offer a bit longer term, maybe 12 months with the option to extend later for an additional fee in-case you don't finish as planned. They'll lend you something like 75% of the acquisition funds PLUS upto 100% of the rehab funds. 

You'll have to have the cash for the rehabs up-front, but basically how it works is you put your 25% down and get the 75% from the lender to acquire (there will be points and fees as @Christopher Phillips mentioned), and during the loan process, you'll provide bids for all of the work needing to be done to the property. Once you acquire, you start your rehab, let's say you upgrade the kitchen and it costs you $15k -- you submit your receipts to the lender to show you paid $15k for the kitchen, and they send someone out to verify the kitchen is done. Then they reimburse you for the $15k you've spent. So-on-and-so-forth until the project is complete. 

This is often a bit easier, not only for a newbie, but for experienced investors as well since it allows them to spread their capital to multiple projects at a time vs. tying up all their capital into one project. I'm not saying I recommend multiple projects at a time, especially while you're starting out. Point being, there are options other than hard money loans for what you're trying to do. 

By the way, Kudos to you for making a plan and doing your due-diligence! It will pay off once you close your first deal! :)

@Charles Lecky,

Maybe I'm misunderstanding the LTV part, are you saying you want to put down between 25% and 40%? Or you're looking for a loan roughly in that LTV ballpark?

I have lenders that will allow for up to 70% LTV on commercial buildings. Anywhere from 20 year am to 30 year am.

Some of them will offer rates in the low-5's, others are higher. It all depends on how we're qualifying for the loan -- are we in a position to be able to provide tax returns and income for the purposes of qualifying? or is the property currently tenant-occupied where we can qualify based on rents received (cash-flow of the property)?

Are YOU currently occupying (or plan to occupy) the property? what type of business is in there currently? ALL of these questions will go into determining which lender is the best fit for your specific scenario. 

I also have a lender in the 7%-9%-range for commercial properties where they don't look at income or taxes and frankly don't care about the cash-flow if the loan amount is under $500k.

Some will have balloon payments, others won't. Some will have prepayment penalties, others won't. 

Point being, there are so many options out there at this point, it's difficult to give you "average terms and rates" because frankly, they're all over the board. 

Hope this somewhat answers your question :)

Hi @Ben Rishwain,

There is so much more info that's needed to determine the best fit for what you're trying to do. 

Do you own this property currently and are looking to refinance it? Or are you looking for purchase money?

Is the property stabilized? any vacancies?

Is it cash-flowing?

My first suggestion would be to reach out to a broker who specializes in lending options for such investment property types.  Brokers are best-suited to look at the specific situation and find you the right fit, not just whichever lender says "yes" first. 

My second suggestion would be to look into Portfolio lenders. Although this is one property, since it has 10-units, you should fit within the Portfolio bucket and be able to obtain MUCH better terms with this route than you would private money. If you were my client, this is where I would start, before we even began talking about private money options. 

Qualification for a Portfolio loan would be based on how cash-flowing the property is, so make sure to have a solid idea of gross rents received, along with the expenses for the property (including taxes and insurance, maintenance, landscaping, any landlord-paid utilities, etc.). 

Hope this helps!

Great post @Kevin Romines! Very well said.