Realistic? Or a pipedream?

Question

Hey BP,

I was wondering if anyone could tell me if this idea is realistic, or just hopes and dreams. To finance my first property, would it be possible to get a loan for the down payment, and finance the rest through either a mortgage or private lender? I was specifically thinking of either a signature loan or a loan through something like LendingClub.com, which is a peer to peer lending site. That would cover most, if not all of the down payment. Then, finance the rest of the deal through something like a hard money lender. Is that possible? Has anyone tried that strategy before?

This would be for my first deal, and I am in the New Orleans, LA area.

Any and all advice and insight on this is greatly appreciated!

Sean

Norm Bessette · Answer

Sean:

your concept is a little easier if it is a larger multi (5+) and will be considered a commercial mortgage.  I know because that is exactly how I have been doing them in Southeastern Mass.  I have used both prosper and lending club as well as 401K loans and credit cards (18mo 0% interest) as well as other investors giving them 8-10% on their money.  This has worked for two reasons:

1) The properties usually cash flow 30%+ cash on cash or have over a 2.0 debt service coverage so they throw off more than the primary mortgage and the prosper or lending loan and then some

2) commercial lenders don't care (at least mine) where the down payment comes from and only that the property can stand on itself. If you wanted it tied as a second (like form a private individual that wants security) then the bank will care but even then not too much.

Like I said some will consider this too risky and I would only say it isn't because these properties have excellent cash flow.  If it was thinner I would sue more caution.

You can PM me if you want a little more detail.

James Paine · Answer

I think it is doable if you are going to buy it and put some sweat equity in.  The "2nd" behind the first lender would probably need to be friend or family.  If they co-sign they can put up the downpayment without breaking any rules.  I'd recommend that over going with HML.

Jeff B. · Answer

Traditionally, lenders dislike the down payment to be OPM, as that signals the buyer has no skin in the game and thus is a higher risk.  This is about the same risk to them as a Stated Income (aka non-verified) loan and that's what had a major impact on the 2008 RE bubble.

Kristopher Windsor · Answer

I tried to do this a couple years ago, but LendingClub thought my loan was risky (although I had good credit) and offered me a ~25% interest rate, which I didn't go through with. So, this route might be less of an option than you think.

Mark Nolan · Answer

Those looking to invest their 401k funds in real estate through a 401k loan can learn more about the loan rules by visiting the following IRS link.

https://www.irs.gov/Retirement-Plans/Retirement-Pl...

Triston Murray · Answer

@Sean Blanchard

This is possible! The payments on the loan you use for the down payment would have to be low enough to not mess up any of your credit ratios too much. I had this discussion with my local banker, and he says he will still have to underwrite and I will need to qualify, but he sees no issues with originating a mortgage on a property I am using a loan or line of credit as down payment on.

Consider loc's... maybe your family/ friends/ partner already has property that a sizeable loc can be placed on? I'd imagine this would be cheaper than a lending club.com loan or HML.... but both are surely options!

By partnering with my parents, I am leveraging their existing properties by placing loc's on them. The plan is to draw the down payment, the rehab, and holding costs from the loc and finance the property with a mortgage. We repay all the mortgage and as much or all of the loc down at refinance,.. If there is anything left over that's great but if not I'm still likely a happy camper.

Mike Wood · Answer

@Sean Blanchard While not impossible, 100% financing is very rare, and typically not accessible to someone with limited or no experience in RE investing.  Those making the loans want to know your good on making the payments.

You did not explain if your planning on flips or buy & hold, but the mention of hard money indicates that you are planning on flips, which would beg the question about rehab money and where do you plan on getting that from?

Richard Dunlop · Answer

HML will typically want to be paid off in 6-18 months, what is your exit strategy?

There are people on here that have financed the entire purchase with a peer-to-peer loan.

Realistic? Or a pipedream?

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