Since Banks wont lend for distressed properties/using Leverage?

[Lashon Ene]

Hi everyone,

I have a question that came to my mind today. I recently purchased my first property (from a wholesaler) and plan to fix and rent then Cash out refi. I was always told that it is better to use someone elses money/leverage to purchase properties because it has many tax benefit so once i cash out refi i plan to try to put 20% down on a multi-unit next.

My question is if banks will not give you a loan for distressed properties, what kind of properties should i be looking for in order to get financing from a bank and still cash flow monthly? I would think the best cash flowing properties are the ones thats distressed but banks do not want to give a loan for these.

You advice is needed. Thank you

[Chris Mason]

Originally posted by @Lashon Ene:

Hi everyone,

I have a question that came to my mind today. I recently purchased my first property (from a wholesaler) and plan to fix and rent then Cash out refi. I was always told that it is better to use someone elses money/leverage to purchase properties because it has many tax benefit so once i cash out refi i plan to try to put 20% down on a multi-unit next.

My question is if banks will not give you a loan for distressed properties, what kind of properties should i be looking for in order to get financing from a bank and still cash flow monthly? I would think the best cash flowing properties are the ones thats distressed but banks do not want to give a loan for these.

You advice is needed. Thank you

 There's a big price discontinuity on either side of the "can" v "can't" get a normal mortgage line in the sand. 

Once strategy that carries a modest amount of risk that I have seen used to great success is to go into escrow on properties barely on the other side of that line. It's on the wrong side of the line so you still get a discount. Here's where it's risky: you go in and fix up the property that you don't even yet own, the week or day before the appraisal. The closer the property is to that line, the less the risk. 

Best case I have seen was a missing oven (no oven = can't cook = not a complete home = no traditional mortgage). A hundred bucks on craigslist and a few day laborers to install the used oven got this property for $45k less than the appraised value.... you can laugh at "only" $45k in free equity if you want since that is "nothing" in the Bay Area, but go ahead and calculate the ROI on a used oven + day laborers and consider how little was risked to see this $45k upside (and this is just appraised value, who knows what it might have actually sold for).