What kind of loan do you recommend?

Question

When purchasing a 20% down investment property, do you just have to pay cash for all the repair costs too and then refinance? I would just assume incorporate the repairs into the loan if possible?

Ed Burk · Answer

@Lane Stubblefield Great question. As a Private Lender I can shed some light on how the "fix and flip' type loans work. Not knowing your qualifications, and stated this is the 1st project, I would assume an Intro tier, Leverage would be 75% of Acquisition/Purchase | 100% Rehab holdback | 70% ARV. Our top tier allows (90%/100%/75%) Purchase @ $80k @ 75% = $20k down payment ARV @ $150k @ 70% = $105,000 MAX total loan amount- your Total loan = $80k Rehab @ 100% @ $20k = $20k Holdback for repairs. Since we issue on a Draw basis, you would complete x% of the work, and then be reimbursed for that amount. Interest Only payment for 12 months- based on the Advanced portion. So you would not be charged interest on the holdback amount until it was reimbursed. Hope this helps Lane...

Will Fraser · Answer

Hey @Lane Stubblefield, it all comes down to how many repairs are needed. If it is basically turn-key right now and you need to paint it and fix some blinds then out of pocket will be sufficient for that, but if you are doing much more or if anything you are doing is going to significantly raise the value of the home then cash/construction loan with a a refinance could work beautifully. As @Jon Kelly pointed out above, try to reduce your unnecessary costs, and redundant lender and title fees fit that bill.

Jon Kelly · Answer

@Lane Stubblefield What are the numbers? Purchase price, rehab costs, ARV? Is there any way you can purchase the property in cash? Buying in cash, rehabbing, refinancing is your best option. 6-9 month interest only loan is the 2nd best option. Look for hard/private money first and then look for construction loans. Complete your rehab then refinance. 3rd and worst option is buying with conventional mortgage, rehabbing and then financing. You'll end up paying closing costs twice.

Elise Marquette · Answer

If the property will pass inspection maybe buy it on a Conventional loan for 15% down to keep the cash in your pocket (and protect yourself if things don't work out with the property for any reason!) and then do all the repairs cash. That way you have favorable loan terms, no balloon or anything like that, all your cash available for whatever comes up, and you can still force appreciation.

Lane Stubblefield · Answer

@Jon Kelly I'm not aware of the interest only payment for 6 months route? The loan is really where I'm struggling to understand. I've read about different ways I'm just not understanding quite yet. Being a realtor I haven't had to work with anything other than Federal loans and conventional.

Jon Kelly · Answer

@Lane Stubblefield can you borrow the money for 6-months with interest only payments? If not, I'd look into a construction loan. Try to get a loan with the lease amount of points/fees. This looks like a homerun BRRRR property. After rehab you'll be able to pull out ~$113k (~75% of $150k).

Lane Stubblefield · Answer

@Tarik Turner I hadn't heard of this loan. I will research this. Thank you for the help.

Tarik Turner · Answer

It's a small loan amount but you should look into a fix and flip loan product. They are typically 12 month terms with higher interest rates but you can get around 75% to 90% of the purchase and 100% of the rehab costs depending on the lender. If you don't plan on selling the property you can always cash out refi on the back end based on the ARV. Just be sure to know which lender you will refi with and have an idea of their seasoning period

Lane Stubblefield · Answer

@Will Fraser Good morning sir! The home is pretty well turn key it is just outdated. Built in the 50s but it's what we all like..3 bed 2 bath 2 car garage.. with a full basement. So, I think if I put 20k in it I could have it updated and be worth 150k. Just getting the loan is my mental hold up right now. So I thought I would reach out on here to get input. Thank you for the help.

Lane Stubblefield · Answer

@Jon Kelly I am hoping to get the property at $80k. Repairs I'm guessing $20k. ARV is 150-155k.I only have 80k saved up so I wouldn't be able to purchase it and fix it up. I was hoping to stay at that 20k out of pocket range. This would be my first Investment property. I have access to private money but, I'm trying to build a portfolio for myself before I go the route of asking for it. Thank you for the help.