Loan for 0 down

[Stephen Torti]

Hey, Providence / Rhode Island / Massachusetts REI!

Looking for a little advice, my partner and I have our outlined plan for the start of 2017 below but we ran into a road-block.  

1. I will qualify for a good traditional mortgage in February and will be buying a 3 unit so I'm saving my money for the down-payment on that.

2. We came across a very low-cost SFR that we could pick up before the 1st of the year and the plan was to have my partner get a Ocean State Grad-grant to go in with $0 out of pocket, get a loan for repairs and BRRR it. My partner would live in it while we're fixing it up to save on holding costs.

3.  Problem:  Looks like the OS Grad Grant is no longer valid.  Is there another way to go about this to go in with $0 out of pocket?  

Tags:

Financing

Hard Money

Investing

House-Hacking

[Anthony Thompson]

The Ocean State Grad Grant program would have required your partner to live in the house as his primary residence for 5 years, and sign documents stating that is his intention (and if there are Federal funds involved - almost certainly the case - I believe it would be a felony to lie about that).

So I'm not sure how the BRRR strategy would work in that case with a singly family he'd have to live in for 5 years.

If you're going to have to seek out private/hard money to make the deal work then you should plan for your partner not to live in the property, because a commercial loan (rental property, not owner-occupied) is a thousand times easier than a residential owner-occupied loan. Thanks to consumer protection laws following the 2008 housing crash, I can't think of a single private/hard money lender I know who will make a loan on an owner-occupied house.

It all depends on how much equity there is in the deal. If you're really getting it for a steal, say 50-60K under market value in present condition, then you have room to give up some of the deal in exchange for a loan for the downpayment and/or repairs.

But if you're only getting it for 10 or 20K under market, it might be too tight for a lender to take a chance on a riskier 2nd position mortgage especially if it needs rehab. A good foreclosure can run 10K in itself, so lenders need to account for that kind of thing when they decide how much of a property's current value they can loan against (LTV, loan to value).

A lender generally wouldn't want to hear something like, "we don't have enough to buy it cash, we don't have anything to put down anything for a down payment, and we don't have anything to do the rehab, please give us a 2nd position mortgage (after the primary mortgage) so we have a down payment and money to do the rehab".

From a lender's point of view, they're in a very risky position - 2nd position after the 1st mortgage, property needs rehab, they're just a lender so they have no control, inexperienced borrower who has no money at risk in the deal. At that point the lender has everything at risk and the owner has nothing at risk - the lender may as well be the one buying it.

Which actually leads to a possibly better idea: If you genuinely think this is a decent deal, for at least 20K below market in current condition, but you have no money right now for a loan down payment or rehab costs, then can still capture some of the value being left on the table by the seller by wholesaling it.

Get it under contract and then contact a cash buyer (I am one but I'm sure there are many others here on BP) and then you'll really find out if it's as good a deal as you thought :)

One other thought though, if it's bank owned and listed on the MLS, don't expect to be able to wholesale by assigning that contract. The only way to do that would be to actually close on it and then resell it, which bring us back to the no-money problem.

(In theory you could wholesale an MLS property which isn't bank-owned, but in practice it's often difficult as an MLS property usually - not always, but definitely the vast majority of the time - is already priced at or very near market value, so there's usually not enough margin to wholesale an MLS property. And agents hate hate hate it, which I can't blame them for since they don't know who the "real" buyer is and the chances of the wholesaler flaking are non-zero.)

But if it is a private sale (non-MLS) and you think it is a decent deal, but you have no money, then get it under contract and contact a cash buyer like me. If you don't know how to do that I'll be happy to get together with you to discuss the process as it has worked for others generally. (I don't give legal or tax advice and my god I have no time for mentoring people :)