Analysis Paralysis to Getting my Feet wet

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Analysis Paralysis to Getting my Feet wet

Nickea Bennett
Member since 2018 · 17 posts · 4 votes

Hi everyone,

Getting started is really overwhelming. I am trying to move out of the analysis paralysis phase and want to get my feet wet and take that leap. I am currently looking at two possibilities one a foreclosed SF home and the other a duplex with renters occupying the residence. I want to flip both but may end up keeping the duplex if I am able to get a lender to work with. The landlord we used to rent from (currently own) has a property that he is willing to sell with current renters, this one cost a bit more than the other two. 

I tried to contact a few of the HML and private lenders here on BP recommended list and one, in particular, is willing to work with me but I have a few questions that I hope I can get answered.

1. The HML wants me to pay them $250 for pre-approval letter as a way to hold on to our business. I would get the money back as a credit. Plus, the credit score must be at least 600. Does this sound right?

2. A first-time investor with limit resources to fund the remaining balance of the loan. HML require 10% down and %10 down for rehab with 12% interest.

What options available for a new investor to acquire the additional funding? Properties are located in PA and I was told the seller can only assist with up to two percent. 

3. I was told that I must have an LLC and if I am going to use a borrow/partner they must be a member of the organization. Also, if my credit score is lower than the other member/partner that other member must be president. Does this sound right?

I have been researching real estate investing for a while, on and off, and was able to purchase our first home in Dec. 2017 and want to actually jump into the investing aspect of things.

Best regards,

Nick

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Amanda G.
Rental Property Investor · Augusta, GA · Member since 2017 · 825 posts · 278 votes
8y

It sounds like you are jumping in the deep end on your first purchase. You're asking a lot of detailed questions about HML, so you are probably going to hate that I'm changing the topic slightly. Does the rest of the deal analysis work for you? A foreclosed home is likely to need a lot of additional rehab. Stepping into a purchase with current tenants can be a lot easier, if the numbers are good.

You might look at a HELOC on your personal home, but not until you have really worked through the risks. it would be awful to lose your own home on your first investment purchase.

It has only been five months since your home purchase- how is your emergency fund? Could you cover your deductible, plus more, if something bad happened? 

#3 is pure nonsense. that leads me to worry about the rest of what you are hearing from the HML.

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  • Amanda G.
    Rental Property Investor · Augusta, GA · Member since 2017 · 825 posts · 278 votes
    8y

    It sounds like you are jumping in the deep end on your first purchase. You're asking a lot of detailed questions about HML, so you are probably going to hate that I'm changing the topic slightly. Does the rest of the deal analysis work for you? A foreclosed home is likely to need a lot of additional rehab. Stepping into a purchase with current tenants can be a lot easier, if the numbers are good.

    You might look at a HELOC on your personal home, but not until you have really worked through the risks. it would be awful to lose your own home on your first investment purchase.

    It has only been five months since your home purchase- how is your emergency fund? Could you cover your deductible, plus more, if something bad happened? 

    #3 is pure nonsense. that leads me to worry about the rest of what you are hearing from the HML.

    2Reply
  • Nickea Bennett
    OP
    Member since 2018 · 17 posts · 4 votes
    8y

    Hi @Amanda G. ,

    Thank you for the reply. I am planning to leave my primary house out of the picture altogether. I was able to get a family member on board to come up with some of the required deposit. Also, I am seeking other HML options that I see most people, thus far, recommended.

    Let's see how this first flip works out. Thanks again for your reply. 

    Best regards,

    Nick

    1Reply
  • Nickea Bennett
    OP
    Member since 2018 · 17 posts · 4 votes
    8y

    Hi @Account Closed

    Can you give some more details as to why newbies should stay away from HML? The units that I am going for are ones that already have tenants, does that make any difference or do you still feel its a bad choice starting out?

    Best regards,

    Nick

    0Reply
  • Nghi Le
    Investor / Lender · Seattle, WA · Member since 2014 · 1k+ posts · 730 votes
    8y

    First off, you should never need to pay a HML to get a POF or Pre-Approval letter. Or even to start an application. Only pay at closing, unless it's for a BPO/appraisal (in which case you can pay to the appraisal company directly).

    Other than that, the rest of the HML terms sound pretty standard. I'm guessing 12% and 3 pts for the 1-yr loan at 90% LTC? Some lenders will require an LLC, and some won't. Sometimes the state that you're in will require you to use an entity as well, such as OH, FL, NC, etc. PA doesn't though, so maybe you just need to find another lender.

    And it's pretty normal for them to require all members to qualify.  I don't know about that president part though.

    No lender likes to see that you're not bringing in any money to closing.  You can ask a family member for a loan, but some lenders will require that amount to be sourced once they see a large deposit in your bank statements.

    By the way, if you're ever planning to keep a property (i.e. the BRRRR method), always get pre-qualified with a conventional lender first to make sure that you actually can do the refi, otherwise you'll be stuck in a hard money loan. Never get into a hard money loan without vetting your exit strategy.

    1Reply
  • Nghi Le
    Investor / Lender · Seattle, WA · Member since 2014 · 1k+ posts · 730 votes
    8y
    Originally posted by @Account Closed:

    You buy a duplex with HML, already tenanted. Whats your exit plan? Is it a HML for 30 years?

    Sorry but a lot of times i comment not even understanding what is happening........................lol. 

    My understanding HML is for short term gigs. Not an ongoing thing like a 30 year mortgage.

    HMLs also do lend long-term, usually 5-yr or 30-yr.  Rates and fees will obviously be higher than conventional (5-8%), but these loans are meant for people who can't qualify for conventional loans anyway.

    1Reply
  • Nickea Bennett
    OP
    Member since 2018 · 17 posts · 4 votes
    8y

    Hi @Nghi Le ,

    Thank you very much for such a detailed reply, I really appreciate the feedback. I'm in the process of seeking out other HMLs. 

    The good news is I made a call to a for sale by owner and refreshed my memory on owner financing afterward. This new seller gave me a price for one half of a duplex with a tenant and mentioned the price is negotiable. After a few questions, the seller also mentioned they possibly want to get rid of all 12 properties all with tenants and some duplex, not sure how many at this time. Currently, working with PM to gain access to three of the properties for a walkthrough. 

    Also, contacted my last landlord and he is willing to sell some of his properties. He seems to want money upfront and when approached with seller finance his questions were "what is in it for him? he is getting close to 2k a month, what are the benefits for him? He has no mortgage on his properties, I am not sure as yet about the seller mentioned above. I should have mentioned the tax benefits of seller financing but I am not sure if that alone would have won him over.

    Thus far, I have concluded that seller financing for newbies might be a good starting point to get our feet wet especially in my position. What I plan to over the first seller mentioned above if they own the property free and clear is 30-year mortgage payment with a 3-5 year balloon. Down payment and interest rate I am willing to negotiate starting at %0  and $0 down. At the end of 5 years either I negotiate an extension or refi for 30, fix and flip.

    Hopefully, I can win over the first seller mentioned but as for my last landlord that might be a hard bargain. I am not sure what methods to use to sway him my way. 

    Any advice in regards to the above-mentioned statements would be greatly appreciated. 

    Best regards,

    Nick

    0Reply
  • Nickea Bennett
    OP
    Member since 2018 · 17 posts · 4 votes
    8y

    Hi @Account Closed ,

    LOL, the other half is vacant and owned by another person. I will search for the owner of the vacant side before moving forward with that option.

    Best regards,

    Nick

    0Reply
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