How do I secure lending on down payment / construction costs

[Max Nathan]

I'm trying to get financing lined up before I find a deal. I want to do a seller financed deal that allows me to put less down, but I still have to come out of pocket the rest of the down payment and construction costs so I have a few questions

1. Can I get a loan for the down payment / construction costs

2. In a seller finance scenario and my new posed scenario can I get both parties to agree to let me start paying 3-6 months down the road after the rehab and I start cashflowing?

I really feel this financing situation is holding me back from going and finding a deal. Would love some advice

[Nicholas L.]

@Max Nathan

you won't be able to get a loan "for the down payment" specifically, so you'd need cash from some other source, like a HELOC or a personal loan. but if you're that leveraged, it will be higher risk and very difficult to cash flow - so that is not something I would typically recommend.

[Chris Seveney]

Quote from @Max Nathan:

I'm trying to get financing lined up before I find a deal. I want to do a seller financed deal that allows me to put less down, but I still have to come out of pocket the rest of the down payment and construction costs so I have a few questions

1. Can I get a loan for the down payment / construction costs

2. In a seller finance scenario and my new posed scenario can I get both parties to agree to let me start paying 3-6 months down the road after the rehab and I start cashflowing?

I really feel this financing situation is holding me back from going and finding a deal. Would love some advice

 you can ask the seller to delay payments but typically they will not. I always recommend that you have significant cash before buying as real estate is cash intensive business

[Bill B.]

You will definitely come out of pocket WAY more with seller financing than with the lowest owner occupant loans. You’ll probably pay a higher sales price and a higher interest rate as well. If you want to put less than 20% down skip the seller financing and move in to the property. Live there for a year while you fix it up. And then rent it out. Or stay a second year and sell tax free. 

[JooYung Choi]

Sounds like you need a hard money lender or a private money lender for your specific situation.

Seller's financing is the best way to go if yall can come to terms. In your scenario, maybe you could offer more money if they agree to your terms.

[Derrick Lewis]

Most hard money lenders will fund 70% of the purchase price and 100% of the rehab costs. You don't start paying on the rehab portion until you actually draw that money, but you will need to start paying on the purchase price immediately. Another option is to use a rehab-only loan from a HML while going with seller financing for the purchase. That may lower your closing costs, but most lenders have minimums (usually $65K or more) for what they'll lend. Keep in mind that any initial rehab costs are on you until you get your first draw.

If you can get work done quickly, some lenders I’ve worked with can inspect the property the next day and wire funds the same or the following day. For example, on a recent project, Draw #1 covered the roof, demo, and trash-out. That work was done the day after closing, and we got the first draw the day after. That draw fully reimbursed us for the work and covered the closing costs we’d already paid. We typically estimate standard costs for these items but get them done much cheaper with our own crew. If your numbers are solid, you might even be able to cover the monthly payments out of the rehab budget.

This kind of setup works best for properties that need significant rehab, and you need to be confident in your numbers and your ability to get the work done. The only way to get help with the down payment before closing would be through a HELOC, personal loan, or private lender, as others have mentioned.

[Jay Hinrichs]

you cannot realistically buy real estate when you have no personal funds.

but what you can do is work to put a partnership together where you find a money partner and you guys do a JV money partner you do the work.. this can happen if you find someone who takes a shine to you and wants to help U

[Mike Klarman]

You can ask for whatever you want in a negotiation.  As someone who deals and talks to real Private Lenders (small shops run by a guy who lends his own capital and doesn't use big box), they have a hard and fast business model that produces the rate of return they need to remain profitable and curb the risk on their cash.

So the best product for a budding fix and flip investor is the bridge loan which includes acquisition money and construction money.  That will require somewhere between 10% - 20% down.  Now, you are asking can you use a Gap/Transactional funder for the downpayment and closing costs?  Yes, if you know the lenders who do not care about seasoning, no if you do not or get the money and season it so the deposit can't be seen.

Now, that is a nightmare scenario and let me tell you why. You are leveraged out 100% and when you are leveraged out 100% you have like 0 wiggle room on the numbers. The Project cost better be the project cost and the ARV better be the ARV. You can take yourself out or severely set yourself back if things go awry.

I've bounced around the investment mortgage industry for 5 years.  I've met a handful of true PMLs.  If I ever brought any of them a deal by.a rookie investor in a market they do not know, with work performed by a GC that has 0 relationship with the investor, they would laugh at me.

PML is not just Potsy from Happy Days.  PML is not some putz that you're gonna dictate to as far as terms and structure.  On the contrary, they usually have a very specific business model they stick to cause it shows the return they are looking for,  It's all about return.  For the investor and for the lender too.