Advice Please!!

[Justin Turner]

I'm trying to get financing on my first investment property for my first "flip"that I found and have under contract for a good price. I'm 20 and I have roughly a 640 credit score. I make 35,000 yearly. And they said I am approved for the first home buyer loan. But I would have to live in it for a year or more until I could sell. Since I will not be living in the property. A Section 8 tenant is living there right now, until the property is sold. They put the loan in a differnet category. And I do not qualify for the commercial loan they said it is. Even with a co-signer?!?! Any suggestions? Thanks, Justin.

[Chris Piper]

@Justin Turner You shouldn't be using traditional financing for real estate investing. If you are are going to rehab the house and flip it, then you need need private funding or hard money. If you are just going to wholesale the house, then you need transactional funding.

Private money is money from an individual investor. It can be a friend, relative, someone you know who invests, etc. Hard money comes from companies who lends money at higher interest rates than normal for a limited amount of time. Typically they will lend for up to a year, sometimes longer. This is perfect for rehabs since you need time to rehab them, market them, and get them sold. You just need to make sure you factor the costs of borrowing the money from a hard lender into your formula so all of your numbers work.

Transactional funding comes from companies who typically will fund a deal for one day. Here is how that works: You find a house you like, you run the numbers, make an offer, it gets accepted, you put it under contract for a particular price, you find a cash buyer, you get them to put it under contract for more than you you did, you contact the transactional funding company, they fund your closing, then the same day you close on the property you sell the property to the cash buyer you have under contract, you get paid the difference from what you contracted for and what you sold it to the cash buyer for. Also, transactional funding is almost always based on the simply having a cash buyer under contract. Your job, income, and credit score have nothing to do with getting approved. If you google transactional funding, you will find plenty of places to contact, and the same if you're looking for hard money.

You could buy the property in your personal name and possibly do a land contract with a buyer, or a lease option. You may be able to buy the property in a land trust also, but you would need to talk to someone more experienced in land trusts to find out if that is a possibility. Land trusts are an easy way to get around the seasoning problems where lenders or financing programs require you to live in the property for a minimum amount of time. Good luck.