How much money to borrow?

Question

Hello all, I am a new to real estate investing and still in the research and reading phase. I have read that when you buy a property you have to hold on to it for 90 days to avoid some sort of penalty. So when you factor in your expenses you should factor in 3 months of costs. Is this true? Second if you do have to factor in 3 months of expenses, does that come out of your pocket?

Thanks

Francisco Torres · Answer

Thank you all for your responses, these are all subjects that I will look into and research. I am very interested and motivated so I am ready to get started!

Jon Holdman · Answer

There are two different issues you might hit. One is that your hard money lender may have a prepayment penalty or a minimum interest. The other is the seasoning issue for your end buyer's lender discussed above.

J Scott · Answer

First, to answer your question, the problem is with the lender of the person who would be buying your house. If the person who wants to buy your fixed-up house is trying to get an FHA loan, their lender will require that the seller (you) have owned the home for at least 90 days. Your options are to wait the 90 days to sell or to find a non-FHA borrower to sell to. As for this point... Quick? Potentially. Easy? No. Especially in this market. I would suggest that before you seriously consider getting into the rehab and flip business that you do a LOT of research on a number of subjects, including: - Your market. What's selling and not selling in your market. What price ranges, what types of houses, which neighborhoods, etc. - Your buyer demographic. Who's buying in your neighborhoods? What types of loans are they getting? What are their FICO scores? Do they have cash or do they need help with closing costs? Etc... - Financing. Where will you get the money to do this? You mentioned HML...do you know any? - Rehabbing. What do you know about the cost of construction and rehab? If not much, you need to learn. You need to learn how to estimate the cost of a rehab job, how to find contractors, how to manage contractors, etc. - Financial Analysis. What's a good deal? Why? You need to learn how to tell the difference between a bad deal and a good deal. Then you need to be able to tell the difference between a good deal and a great deal. If you have the cash to jump in and learn from your experiences, go for it. But keep in mind that if you do this, you'll likely lose money on your first deal (many people do). The other alternative is to spend several months learning everything you can about the business, and perhaps find a mentor. Good luck!

J Scott · Answer

Don't know exactly what you're referring to, but if you're planning to flip, you may be referring to the FHA 90-Day Rule. This FHA rule basically states that if a buyer wants to buy a property with an FHA loan, the seller must have owned the property for at least 90 days. This would affect you if you were planning to try to sell rehabs to FHA buyers; in this case, you would need to wait 90 days from the time you closed on the purchase to the time you close on the sale. Keep in mind that many first-time homebuyers in this market are FHA buyers, so you might run into this rule on many occasions. Personally, I run into this rule on about 50% of my rehabs. Also, keep in mind that in this market, you probably want to plan on at least 6 months holding costs, not just 3. You may be lucky and sell quickly, but more often than not, both the rehab and the selling take longer than you expect. Good luck!

Francisco Torres · Answer

Ok so what I'm thinking is borrowing money from a hard money lender and buying a house for a quick fix and flip of the house. From what I have read here and other places this is the way to start making some money. So are you saying that a lender will want you to hold onto the house longer? So when you agree to their loan there is time period you agree to? With that you have to wait to sell the house?

Jon Holdman · Answer

You need to explain your plan. What are you planning to do with the property after you buy it? Some lenders want to see that you have owned the property for some time period before they will finance it. That would apply if you're trying to refinance it or if you're selling it to someone else. Exactly how long depends on the lender, and depends on the loan. A cash out loan will need more "seasoning" than a rate and term refinance, for example. If you're trying to do a fix and flip, there are a LOT of costs they skip over on shows like "flip this house".