Need "outside the box" advice. High debit own home already. BRRR?

Question

First and foremost, I am an idiot. =) .. now that we got that out of the way.. I guess because I do not want to hear the pay down your debt, get rid of debt, get your mind out the gutter talk.

A little about my situation...

I am totally trying to bring down debt, and have done a good job so far. Going from 125k in debt to about 65k in debt within the last 4 years. Yes its taking a while but its going and I am putting a lot into this. Reason for all the debt was a failed business investment a few years ago and I refuse to ruin my credit.  I am taking the hit because I am responsible for this debt failed or not. ( Trying to earn brownie points with people that care. )

Don't feel too bad for me.. one of my goals last 3 years was to buy a home even with all that debt. So instead of saving more, I made more. Of course not to where I am satisfied. I ended up buying a home 2 years ago even with my 45 percent debt ratio. While not the brightest move, I wanted to make sure my kids had a decent home to go to every day.

So my situation is one of those sounds too good to be true situations. I am given one chance and one chance only. This person offered to take me to auctions or I find my own deal where he will purchase the home with cash.

He is preaching the BRRR method to me too (I think). Basically wash, rinse, dry, repeat. Once I choose a home and sucessfully get it, I have to go out and get my own loan.  And that is my hurdle.

I have a mortgage since 2014.

I still owe money and a lot of it, I already know I am suppose to pay off my debt first but because this is a once in a lifetime opportunity for me.. I just want to get my foot in the door. I just need to find a way to get approved or to get my own loan.

I have about 40k in savings.

Thinking outside the box here, where and how can I get a loan?

1 of the hurdles doing the conventional way was the seasoning process. Only being able to refi at the purchase price and not appraisal value?

Somebody told me to do hard money lending ,eat the prepayment penalty pay off and refi again right after since I can just refi @ appraised price. But max on that at most is 60 percent.

There has got to be a way for me to get financed and not have to put money down as long as my LTV is 70 percent right?

Buy @ auction - $700,000

Value @           - $1,000,000

He sells to me @ $700,000 but now I have to get the loan. This would be an investment property. I would rehab and rent it out.

Somebody also said something about taking a rehab loan out?

Or even credit to escrow? Like he sells me the home @ 1 million and puts credit to escrow $300,000 for repairs. I in turn can use that as a down payment. What pros and cons would I have for that? Doesnt that hurt him because of capital gains and he will have to pay taxes?

These are some of the things I have heard. Any info, advice, would be greatly appreciated.

If I am not clear or missing some info, please ask. I am actually nervous just typing this post. hope somebody can help me.

Thanks so much.

Russell Gronsky · Answer

Look at asset based lending instead of conventional lending (which looks at your DTI ratio). Just hit the google machine and watch the magic happen.

If it is a multi-family house, you might be able to get an investment loan on it. Plenty of people on bigger pockets advertise those.

Do you have stocks/bonds/other investment securities? If so, you can borrow on margin against those positions. I know TDAmeritrade and Charles Schwab do this for a fact. Don't know about other brokerage houses.

As for the seasoning process, the constraint you mention sounds weird. Refi at purchase price, not appraised value? Even if you rehab the property (as you intend to do)? How long does the seasoning process take before you have that restraint lifted? Maybe another lender won't have a rule like that to enforce?

For a rehab loan, if it is the loan I am thinking about (you get a loan for purchasing the house and money to remodel it), it can get tricky as I think you have to have the rehab completed within 6 months of purchase. If you are chasing a property worth $1 million, 6 months might not be enough time, depending on what kind of property and what work it needs. I'd double check on the rules of the rehab loan or you might dig yourself into a hole.

I would avoid hard money lending unless it is your absolutely last resort. The interest rates are high... unless you find an absolute steal at auction.

Also, while paying down TOXIC debt is good, you can't always finish paying it before a good deal comes along so don't feel bad. Besides, if you rent out the new house and get cash flow, that means you pay down your debts even faster. How about that for a different way of looking at it?  =)

Finally, I hope you know exactly how much disposable income you have so if this investment property sits empty, has issues with rehab that takes longer to get it to market or whatever other issues can (and do) arise with real estate, that you can ride out the hard times without losing your shirt. The last thing you want to do while recovering from one bad situation is to get caught in another bad situation that compounds the effect. $700K - $1 million is a big price tag. Assuming you got financing, would you be able to meet all your existing financial obligations AND carry the note if the property sits vacant for 6 months? What about if it sits empty for 12 months?

Just throwing things out for consideration as I know when an opportunity comes along, we tend to get tunnel vision. Good luck.