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Updated over 9 years ago, 06/01/2015
Hard money loan denied
I am under contract to purchase a single family home in tampa, fl and my hard money loan got denied less than a week before scheduled closing.
I have a backup option to borough money from my father, but wanted to get advice whether I should continue with the deal.
Here are the numbers:
Purchase price: 68.5k
Arv: 110k (this is the appraised value, but not a lot of comps for this property)
Rehab est cost: 10-15k (mostly cosmetic, plus roof)
Est rent: $950-1050/month
Specs: 984 sq foot home in a good area with good school zones, built in 1958, on .6 acres of land
The reason hard money loan was denied: hm company owner did not like that the house is small and frame and not in a community.
What I intend to do with the property: fix, refinance, and rent out. I estimate my cash flow to be around 450-500 a month after mortgage, taxes, and insurance but before other expenses.
In my area there aren't a lot of properties well under 100k that are in a safe neighborhood with good school zones, which in why to me the property has potential. However, I am a little concerned with the fact that the hmld denied the loan because they didn't like the property.
Thank you in advance for your advice!
Lisa
the property is located in a popular residential area. The surrounding streets are all nice communities, with large expensive block homes. The street this house is on is unique because it consists mostly of 1/2 acre lots which were sold individually. Some of the lots have large beautiful houses with brick driveways, others have mobile homes, others have more modest houses, and some lots still empty.
I have 32k to use for part of purchase price and rehab, and I need to borough about 50k to make this work.
Borrow what you need to get the deal closed.
Evaluate adding square footage to bring house to same size as neighborhood comparables. Be careful, get good ARV comps for larger houses! smallest house in the neighborhood on land can be an attractive deal. Think outside the box!
If you need additional funds along the way or could just use more working capital, or would like to repay Dad earlier consider this: I provide large unsecured credit lines which equate to an additional financing partner at way less than partner costs. Please contact me for details.
Originally posted by @Elizaveta Dolzhenko:
I am under contract to purchase a single family home in tampa, fl and my hard money loan got denied less than a week before scheduled closing.
Here are the numbers:
Purchase price: 68.5k
Arv: 110k (this is the appraised value, but not a lot of comps for this property)
Rehab est cost: 10-15k (mostly cosmetic, plus roof)
Est rent: $950-1050/month
Specs: 984 sq foot home in a good area with good school zones, built in 1958, on .6 acres of land
The reason hard money loan was denied: hm company owner did not like that the house is small and frame and not in a community.
What I intend to do with the property: fix, refinance, and rent out. I estimate my cash flow to be around 450-500 a month after mortgage, taxes, and insurance but before other expenses.
Lisa
Your HML is a great resource on lending for investors, it's what they do! I'd take a second look at the deal.
Let's run your numbers really quick:
$950 rent
50% Rule means expenses should be about $475/mo
Minus your borrowing costs which you estimate at $450 leaves you with -$25/mo on your purchase.
Also, with no tear-off on the roof, a quick google search says that in tampa a new roof is $120per sqs. You have 100 sqs so that means you are looking $12k for a new roof. which is a vast majority of your estimated rehab costs.
For that small property and for the tampa area which has some of the most mild weather in the country year round, you can refine the expenses, but be realistic. 35% + equity is a good deal, just make sure you can cash flow. Figuring expenses on this one is key. 2nd @John Herrick's recommendations.
Lisa,
It lookss to me like you have pretty decent numbers. I know the roof estimate that was given by one of the other members is way high for this area. In Tampa, for that size home, you should be looking at about $4500. Anyway, I have a great contact for hard money loans who may be able to help you. (Nothing in it for me, it's what they do, so may as well share it with you.) I'm a real estate agent in the Tampa area, and I work with some investors, so if you have any questions at all, feel free to reach out to me.
Hopefully you have some avenues for securing your financing, but if you're interested in my contact for HML, let me know and I'll send you the info.
Originally posted by @Troy Fisher:
Originally posted by @Elizaveta Dolzhenko:
I am under contract to purchase a single family home in tampa, fl and my hard money loan got denied less than a week before scheduled closing.
Here are the numbers:
Purchase price: 68.5k
Arv: 110k (this is the appraised value, but not a lot of comps for this property)
Rehab est cost: 10-15k (mostly cosmetic, plus roof)
Est rent: $950-1050/month
Specs: 984 sq foot home in a good area with good school zones, built in 1958, on .6 acres of land
The reason hard money loan was denied: hm company owner did not like that the house is small and frame and not in a community.
What I intend to do with the property: fix, refinance, and rent out. I estimate my cash flow to be around 450-500 a month after mortgage, taxes, and insurance but before other expenses.
Lisa
Your HML is a great resource on lending for investors, it's what they do! I'd take a second look at the deal.
Let's run your numbers really quick:
$950 rent
50% Rule means expenses should be about $475/mo
Minus your borrowing costs which you estimate at $450 leaves you with -$25/mo on your purchase.
Also, with no tear-off on the roof, a quick google search says that in tampa a new roof is $120per sqs. You have 100 sqs so that means you are looking $12k for a new roof. which is a vast majority of your estimated rehab costs.
I'm with Troy on this one. Even if your rehab costs come in at budget, I don't see any cashflow. I think it might work out better once you get a low interest 30 year fixed in place, but it'll still be razor thin. Just be very careful with expense on this one.
It all depends on how conforming it is to the area, if it is one of the only wood framed, 1000 Sq Ft houses in the area, then I would definitely think twice about buying it. Wood frame house typically sell lower than a block house, so i'd see what comps were used in the appraisal. If all the comps are Block houses, I would look for compensating factors to account for the subject property being wood frame.
Depending on the area, it has been increasingly tough to find houses in safe areas, with good schools under $100k, so that is definitely a plus. If the school district is top rated, then you should always have a healthy stable of renters.
Judging from the numbers you gave, this deal would fit in our lending criteria if it would rent for $975+, if you are looking for a second opinion on HMF, i'd be happy to give the property a look & see if we could offer you financing.
From the numbers you gave it could be a decent flip as well. If the cashflow is too narrow.
It's always best to have multiple exit strategies. I applaud you for having a backup financing prepared.
Originally posted by @Troy Fisher:
Originally posted by @Elizaveta Dolzhenko:
I am under contract to purchase a single family home in tampa, fl and my hard money loan got denied less than a week before scheduled closing.
Here are the numbers:
Purchase price: 68.5k
Arv: 110k (this is the appraised value, but not a lot of comps for this property)
Rehab est cost: 10-15k (mostly cosmetic, plus roof)
Est rent: $950-1050/month
Specs: 984 sq foot home in a good area with good school zones, built in 1958, on .6 acres of land
The reason hard money loan was denied: hm company owner did not like that the house is small and frame and not in a community.
What I intend to do with the property: fix, refinance, and rent out. I estimate my cash flow to be around 450-500 a month after mortgage, taxes, and insurance but before other expenses.
Lisa
Your HML is a great resource on lending for investors, it's what they do! I'd take a second look at the deal.
Let's run your numbers really quick:
$950 rent
50% Rule means expenses should be about $475/mo
Minus your borrowing costs which you estimate at $450 leaves you with -$25/mo on your purchase.
Also, with no tear-off on the roof, a quick google search says that in tampa a new roof is $120per sqs. You have 100 sqs so that means you are looking $12k for a new roof. which is a vast majority of your estimated rehab costs.
Good eye, Troy :)
Most likely denied because it is frame. If your HML is local, maybe he knows something about the subdivision that you should be made aware of? If it was a screamin deal, I'm sure he would of done it, even if frame.
Originally posted by @Alex Zokan:
It all depends on how conforming it is to the area, if it is one of the only wood framed, 1000 Sq Ft houses in the area, then I would definitely think twice about buying it. Wood frame house typically sell lower than a block house, so i'd see what comps were used in the appraisal. If all the comps are Block houses, I would look for compensating factors to account for the subject property being wood frame.
Depending on the area, it has been increasingly tough to find houses in safe areas, with good schools under $100k, so that is definitely a plus. If the school district is top rated, then you should always have a healthy stable of renters.
Judging from the numbers you gave, this deal would fit in our lending criteria if it would rent for $975+, if you are looking for a second opinion on HMF, i'd be happy to give the property a look & see if we could offer you financing.
Even at 975 the property is barely profitable, could you give us an idea of what your HML company uses as a guideline for lending $$? I know that most HML are case by case, but you need to have some sort of guiding principals.
Thank you all for your responses, they are very helpful and very appreciated!
Originally posted by @Troy Fisher:
Originally posted by @Alex Zokan:
It all depends on how conforming it is to the area, if it is one of the only wood framed, 1000 Sq Ft houses in the area, then I would definitely think twice about buying it. Wood frame house typically sell lower than a block house, so i'd see what comps were used in the appraisal. If all the comps are Block houses, I would look for compensating factors to account for the subject property being wood frame.
Depending on the area, it has been increasingly tough to find houses in safe areas, with good schools under $100k, so that is definitely a plus. If the school district is top rated, then you should always have a healthy stable of renters.
Judging from the numbers you gave, this deal would fit in our lending criteria if it would rent for $975+, if you are looking for a second opinion on HMF, i'd be happy to give the property a look & see if we could offer you financing.
Even at 975 the property is barely profitable, could you give us an idea of what your HML company uses as a guideline for lending $$? I know that most HML are case by case, but you need to have some sort of guiding principals.
Here's a very basic breakdown of the numbers
- Loan Balance must be 65% LTV or less
- If being rented, Property must meet a Debt Service Coverage Ratio of 1.24+.
We typically factor that 30% of the income will go to expenses, with a loan balance 80% of the purchase, rental income coming in $975+ it meets our DSCR we need to qualify the project.
It still depends on the property / location as well, but that's what we typically look at upfront.
I have been advised to avoid frame structures a.k.a Florida stick houses
Hi Elizaveta,
Because you were Denied by the HML, I would consider the Loan with your Dad. You can probably get a better Deal Financially in terms of interest rates & avoid the high cost of Points and other Feee's associated with a HML. Let's face it, Hard Money Loans are very expensive. Good Luck!
@Elizaveta Dolzhenko, you've received some great feedback in regards to your deal. I would tend to concur with @Mitchell L.. I've had HML's evaluate wood frame houses and have no problem lending on them. It may be the numbers, the area, who knows...
Here's my question: is this your first deal?
Have you considered house hacking?
@Brandon Turner wrote a great post on this a while back:
http://www.biggerpockets.com/renewsblog/2013/11/02...
Your fellow Tamponian... that sounds terrible, let's try Tampa-onian, Tampanite... you get the idea @Mary Ann also wrote a great post on this just last week:
http://www.biggerpockets.com/blogs/6454/blog_posts...
I just ran a quick income property search in the Tampa area and there are quite a few 2-4 unit properties on the market.
The cash flow on this deal, when you run the numbers conservatively (as one should) is not great, I really think you can do better.
I'm just over in Orlando, so reach out anytime I can be of assistance.
Im confused about the roofing quote. I thought that 1 roofing square is equal to 100 square feet. So, her roof is 10,000 square feet?
Yeah, I balked at that roof quote too. If you spend $12k on a roof on a 900 sq/ft house you need to find another occupation. Its 10 sq, not 100. Doubt you could do that for $1,200 either, though.
If your numbers hold, you've got a decent deal there. I wouldn't worry too much about the HML saying no, I got turned down on the best deal I've ever done. I looked at the guy, like "are you serious?" It was a flooded house on the river in an exclusive part of town here, the land was worth 3x the loan I was requesting. He said no because he didnt know if I could get a building permit on the river, but did zero work to check (and it was a non-issue). Some of those guys are just ultra conservative and want everything to be a square peg in a square hole. Like Alex said, I'd be glad to give a look at that thing, I'm sure my lender(s) would do it at better terms than you were working on anyway. That'd be an easy one through LendignHome who just opened in Florida a week or two ago.
Don't know stick vs. block in Florida, but I dont worry much about that stuff myself. Check the comps against like kind property and do the same with DOM. I dont ever exclude a type of property, I just build in the additional risk into my pricing. Sometimes the stuff other people aren't buying is where you find the best deals...
I don't do residential but have many friends that do.
The numbers you gave it sounds like what will happen is repairs will be higher than normal and then selling price will be lower than anticipated.
You might have discounted for a stick home there but might not be enough. Rehab for a rental is different than a resale. You do not want to rehab and can't sell and have high loan carrying cost to convert into a rental that doesn't cash flow. On top of that you will have resale quality fixtures that might get trashed by tenants paying rent. 3 to 4 years down the road you are rehabbing AGAIN for resale.
Did you try to assign this to someone else and let them take the risk?? What about partnering up with a seasoned flipper there to see their take on it?? You could split the risk with them or get out of it all together if they advise it's not a deal because of X,Y,Z. You have to know you can trust them because they might be trying to steal the deal. The seasoned rehabber maybe has all cash or cheaper lending sources than a standard HML loan with their experience that could be a benefit to you on the project.
- Joel Owens
- Podcast Guest on Show #47
Originally posted by @Daniel Miller:
Im confused about the roofing quote. I thought that 1 roofing square is equal to 100 square feet. So, her roof is 10,000 square feet?
Man, I must've been smoking crack when I posted the 100 squares. Glad someone called me out on it.
Yea I was thinking wow that's a killer deal lol...wait a second.
