Dodd Frank and cash financing for rehab deals

Buying & Selling Real Estate
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Dodd Frank and cash financing for rehab deals

James Gresko
Investor · Denton, TX · Member since 2015 · 3 posts · 0 votes

ANOTHER Dodd Frank question: 

How do I get around the owner/occupant restriction for Hard money?  

After several hours of research, I've been unable to come up with some answers to this dilemma.  A lot of people know about the restriction, but I've not found any who've come up with some legal strategies for getting around it.  I have not consulted w/ a RE atty yet, however. 

Because of good credit and ability to pay, I can readily finance a cash offer for almost any deal I'm looking for with hard money or a loan from a bank, but when it comes to buying a home for myself, I'm at a loss because I depend on these sources to complete a cash deal.  I provide only partial funding myself.  I buy old homes and rehab them, but the lenders tell me I CANNOT mortgage the home under my name and occupy it after the rehab.  Which means if I run across a property I want for myself, I'm  limited to homes that will mortgage.  But even if they will, cash buyers rule in the Fort Worth market.  I lost a very good deal this weekend to a cash buyer that I could have outbid.   

Is this a proper or complete understanding of this rule? Will an investor friendly bank extend a LOC loan (or something of the sort) to me personally and still be DF compliant under this circumstance? Will an initial cash purchase though a created LLC be a better solution?

Thanks in advance for answering a question that has probably been answered several times and in several ways.  I've just not come upon it yet.  

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  • Kerry BairdPro Member
    Rental Property Investor · Melbourne, FL · Member since 2011 · 3k+ posts · 2k+ votes
    10y

    That is the stipulation for your hard money provider, so stop running into that dead-end. Real estate is known for creativity, and problem solving. Sellers who own more rugged properties are the very sort who may approve of another solution to selling their house in the typical MLS fashion, as you probably know.

    Why not make a different kind of offer, such as an owner-carry situation, or a lease option? The former can be closed at your local lawyer or title company.  While with the latter, you don't "buy" until you have finished the rehab, and then get a conventional loan. 

    Or use a construction-to-permanent mortgage.

    Partner with someone who can produce funds, or obtain a loan.  Ask your local lawyer to draft up joint venture agreements in this case.

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  • James Gresko
    OP
    Investor · Denton, TX · Member since 2015 · 3 posts · 0 votes
    10y

    Kelly, 

    Thanks so much for taking the time to reply and thank you for your advice.  I probably have not been as clear as I need to be in my particular case, though you did mention a joint venture as a solution. 

    I am currently in pursuit of a home for myself in a very hot niche market, and the strategies you have mentioned (with the exception of a JV) usually fail as offers the great majority of the time because the sellers get the cash they want and walk away - no strings attached. That is my competition, according to local agents, investors and market professionals in this particular market. If DF limits my ability even with an LLC, I suppose a JV or private funding are the options to consider.

    Thanks again.

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  • Kerry BairdPro Member
    Rental Property Investor · Melbourne, FL · Member since 2011 · 3k+ posts · 2k+ votes
    10y

    DF is meant for the consumer, the regular Joe home buyer.  If you make this about a business as the buyer, as an investor, DF won't apply.  

    I have had recent success with a house in a higher-end location on a navigable canal near a beautiful waterway, here in Florida.  A friend brought the deal.  The off-market sellers built the house in 1983 and they do not want to pay a commission on the sale, which should be around $480k.  They appear to be in their 80s, and cannot obviously carry a loan for 30 years.  However, a stream of income is attractive to them, as they look into assisted living.  I talked with them about the benefit of being the bank, and we came up with a 5 year balloon.  We aren't under contract, but I hope to be soon.  We're still building rapport, and figuring out what each of us needs.  This is what I am thinking of when I answered your post.

    Additionally, I marketed with direct mail for a few years, and got a number of properties where the owners carried. In some cases, I bought subject to the existing financing, so I did not qualify with their bank but made payments to the bank, while I rehabbed. I cashed out their mortgage when we sold the house, and we were aming for holding no more than 3-4 months. Direct mail hits people who are motivated but might not have the ability to sell on the MLS. Sometimes it is a situation (health, divorce, recent death and probate, loss of job, jailed member of the household, etc.) Sometimes it is that the house is too expensive and the repairs get out of hand. That would be my other suggestion to you: market to sellers who need to sell, in the area in which you want to buy. Meet with them and see if you can solve their problems.

    No Dodd Frank here.

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  • James Gresko
    OP
    Investor · Denton, TX · Member since 2015 · 3 posts · 0 votes
    10y

    Kelly,

    Thanks for your time - 

    James

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