Getting out of a Hard Money Loan

[Rodrigo Orellana]

I am new to this, I copied and pasted the template to help me write out my situation. 
I started listening to the podcast and the webinars before becoming a full member. After many hardships, losing my mother, my job for over 10 years, covid, etc. I found the strength in my partner to become an investor and a licensed Real Estate Agent. I got my license in September’20 and In October I purchased 3 side by side duplexes.

I am trying to accomplish financial freedom and independence by investing in real estate. I am a newbie to it so everything seems foreign.

Type of property: 3 multi-family (Duplexes, 6 units total 1100 sqft, 3 bedrooms. 1 1/2 baths each unit)

Location of property: Davenport, IA. Scott county.

Purpose of financing: Refinance current hard money loan of $94,750 + $42,500 for rehab a total of $137,250 per Duplex (x3 = $411,750) at 11.99% making interest payments only until August ‘21 when then entire payment is due.

I’d like to refinance ASAP to pay off the current high interest loan.

Type of financing sought: Not sure what I can qualify for, would like something long term 30 years with a fixed APR under 5%

Current or prior ownership of real estate:

I currently own a property in Illinois, that I am fixing to rent it out.

With my sisters we inherited a property in Houston, TX that’s being rented out and a property in Los Angeles, CA where we live in.

These Duplexes in Iowa are my first investments properties ever.

Occupancy: investment with traditional long term leases, in Houston I’ve had 3 tenants since 2015, rent has been steady going up.

For Iowa Duplexes the plan is to lease them out for long term too. They are currently in the rehab stage.

Value of property at present and/or your offer price: $115,000.00

After repair value: $200,000

Anticipated or actual appraisal issues: no, they appraised at $195,000

Current rents per month: $1395

Fair market rents per month: $1150

Down payment or equity: $20,250

payment for purchase mortgage, or how much equity you will have in the property afterwards if a refinance $57,750

Source of down payment funds, if applicable: My own funds, I’ve been having a good paying job for the past 11 years that allowed me to save a good chunk of money that I used for down payment.

Income Source: it's complicated, I worked at a dental office in Los Angeles, CA with a W2, The business was sold during covid and I decided to make this my new career in.

Now I am a Real Estate agent in Iowa (September ‘20) and I’m self-employed.

I have managed renting the property in Houston for my mother all these years so all payments have been going to her, she passed in September and my sisters and I are in the process of probate.

Gross monthly income (optional): $ N/A

Monthly debt obligations appearing on credit report, plus (if applicable) personal rent and alimony/child support/etc: $1000 personal credit card. I don’t pay rent since I inherited the house I live in with my sisters.

FICO: Good. 740-746

Credit issues: None.

Additional details:

The investment properties in Iowa appraised high at $195,000. Purchase price was $115,000. Comps for 3 bedrooms 1 bath rent at $850-$1000. With the $42,500 rehab loan I am building an extra bedroom and a bathroom in the basement, making it a 4 bedrooms, 2 1/2 bathrooms making my rent go from $850-$1000 to $1395, $1395x6 = $8370 a month, $100,440 a year.

This is the reason why I want to BRRRR these 3 Duplexes and not Fix-and-Flip with the hard money lender or wholesale when I had them under contract. I know that these units are a little gold mine for me and already got my foot in the investment world.

My question to you is, how can I refinance these duplexes by February when they will be fully rented if my self-employed history is not 2 years and neither is the rental income that I will start to collect?

Any help will be much obliged.

[Rob Beeman]

@Rodrigo Orellana 

Options on refinancing the duplexes:

1.) Contact "local" banks and credit unions and ask if they loan on rental properties. IF you have the deeds in YOUR PERSONAL NAME, and want to keep it that way - then you would talk to a RESIDENTIAL loan officer. They WILL look at your personal income and personal debt and allow a percentage of the rental income from the property to be used in the total income. The upside = this will typically supply the lowest interest rate, maybe better loan leverage, perhaps title seasoning will not be a concern in determining current value. The downside = the loans WILL probably appear on your credit report (may negatively impact FICO scoring), they WILL use your income and expenses in determining overall DTI (debt to income).

IF you have the deeds IN AN ENTITY (LLC), or want to transfer them into an entity DURING the refi - then you would talk to a COMMERCIAL loan officer and ask if they offer rental loan financing on single family and 2-4 unit multifamily properties. The upside = they will typically NOT look at your personal income/expenses, but use the rental income (the lease) as the driving factor for debt repayment (they might not even ask for tax returns). It will typically NOT appear on your credit report, as the loan is supplied to the entity, and the member(s) of that entity are the guarantors (unless the loan goes into default - then it could appear on a guarantor's personal report). This seems to be the preferred method of most landlords as no matter how many loans they have open, their credit reports are not showing them. The downside = in order to use the current market value the lender may require at least 6 months title seasoning (ownership). If less than 6 months ownership then the value will be calculated by using the purchase price and rehab amount (this will usually not work well on BRRRR's, so make sure 6 month's ownership exists before refinancing). The rate will be higher (more likely in the 6's), term could be 20-30 years amortization depending on the lender. Loan leverage may be lower (up to 75% LTV)

2.) Contact regional or national long-term rental loan lenders. This type of lender will typically ONLY lend to the entity (so if the deeds are currently in your name you will probably have to transfer them (at a cost) to an entity during the refi closing. These lenders specialize in rental loans on 1-4 unit properties and use the income from the property (the lease) as the driving force for debt-to-income ratios (dscr) in their calculations. The dscr, along with the FICO score of the guarantor has an impact on what the loan to value (LTV) may be. Anticipate a loan term of 20-30 years, with possible adjustable rate (ARM) or interest only (IO) options, and rates in the 6's, with loan origination fees paid at closing.

In every case you will typically bear the cost of any appraisal or inspections ordered by the lender.  Good luck.