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Updated over 14 years ago, 04/29/2010
Grade my Funding Possibilites
Getting into the whole game of real estate. Right now, I have about 10 months before I come home from Iraq and I plan to start investing in Real Estate. Going to try and learn as much as possible in the next year.
This is my situation. 20 y/o that owns his own home, never missed a payment on anything. No credit card debit, no car payment anymore. 25k in savings and I have a job. Currently my credit score is 735. By the time I get home I hope to have found that one really well priced home to buy and rehab.
My question is, how is it looking for me to get a loan? I would be comfortable with putting about 20k down on a 80k property and financing the rest. When I bought my home, my mortgage started about 2 months after I moved in. If I qualify for another loan, will I be able to have my mortgage start a month or two after I close? Say I put 20k down on the home, how likely would it be that I can get a equity line of credit as soon as possible, possibly the next day?
With a job, good credit, and the down payment, you should be able to get the loan fairly easily. The key remaining factor is your DTI (debt to income). Not sure what lenders limit this to for investment properties, though. You should start talking to lenders in the area where you'll land. Your best bet is to start building a relationship with a smaller, local bank that does investment real estate loans.
Your chances of buying a house with an 80% loan then getting any sort of equity loan on that property are zero. Lenders will not consider that property to have any equity. Even if you were at 50% LTV you would have a hard time getting another 20% loan. After you owned it for a year, you might be able to refinance at 70% LTV and get some cash out. Lines of credit (second mortgages) on investment property are non-existent right now.
You might try looking for a hard money lender or private lender. The rates will be much higher. But they would lend based on the ARV, at least in some areas. With some cash in hand, a job, and good credit, you should be able to get a good deal funded.
"A good deal" is key. For a fix and flip, a good deal is one where the purchase price plus fixup is under 70% of the ARV. If you can find that, and with your cash in hand, you should be able to find a lender who will do your deals.
If you work on that relationship with a local bank, you may be able to get a construction loan or even a personal line of credit. If you combine that with a conventional mortgage, you may be able to do your deals that way. That will be much cheaper than hard money.
Something to consider is the best fix and flip deals are often very junky houses. Conventional loans are hard to get if the condition is too bad. Hard money, construction loans, or some other source may be your only option.
I second Jon's idea of talking to local banks about rehab loans or construction loans. You might have to do some serious searching, but there's probably at least one local bank in your area that is used to working with real estate investors and has the type of loan product you need.
It sounds like your situation is pretty good (especially for a 20 y.o.!)...congrats on that!
Hopefully you won't have to go the hard money route (it's expensive)...put together a brief business plan, and then start visiting your local banks...
Cliff,
One of the key points that was left out of this thread so far is how important it is that you purchase well below fair market value. If you buy at 70% of value less repairs, you have a great deal and should be able to get financing. While hard money is expensive, your profit margins with a 70% deal are well large enough to cover it.
Many investors use money partners and give half of the profits away on a deal. That is even more costly than a HML.
I am not a HML fan, although, in the business of flipping and your ability to get in and out in an absolute max of 6 months (should be 3), you are safe, unlike getting a hard money loan on a buy and hold in hopes to refi it out down the road. (that is risky in my opinion)
Well thank you for the responses. Ive read a whole bunch of books and articles. Each saying to make friends with the lenders, Im confident that I can do that but where would I start? I assume that the best place would be to go to the bank and ask him to be my friend?....Just kidding Seriously tho, I think the hardest thing for me to grasp right now is the whole friend making thing, its like going to a new school when you were younger, you didnt know anyone but there was that one person who was brave enough to play with you in the sand box and that opened more doors to other friends.
Being away I think is what is making me question it. But Im guessing when im out there looking for houses and going to the courts I will be able to find "connects" that I can get aquatinted with.
Its a process. Go to the FDIC institution directory and search for banks in your area. This directory has enough info to figure out the size of the banks. Find smaller banks, maybe with just a handful of branches. Call them up, and ask if they do investment real estate loans. Most won't, but when you hit one that does, you should get directed to the right person. Once you talk to that person, find out their rates, terms, lending guidelines, etc. Indicate you're willing to use them for your personal and business banking. From there its all about relationship building.
I know people say "build your power team" as if you should go out and start finding specific people to be on your "team". I don't really buy this. There are indeed bunches of people you will deal with. And once you find someone who's good at what you need done and that you get along with, you want to build that relationship and send them more business. But to think you can line up all the right people from the very start, or that you should even try, is, IMHO, a waste of time.
Focus on the basics to start. You want to get funding. You want to buy a property. Focus on making those things happen. That's a relationship with a lender or two and finding a way to find properties.
Cliff,
First, thanks for serving our country.
The best way to make friends with a banker is to make them money. Beg and plead to get the first loan and them make sure you deliver. It took some convincing to get my first construction loan but after my banker saw that I was serious (completing projects on time and on budget and selling for a good profit) she now more readily finances my deals.