What are my options with this sort of HML?

Question

Hi, BP community.

Here is my scenario, and I'm looking at what options I may have, to use this option. The basics are, as follows:

• The lender will lend on any type of real estate, that isn't land, notes, or construction/development projects.
• They will lend up to 60% of the LTV on SFH, or 55% LTV on any commercial (MFH, retail, etc).
• Price between $100K - $3M. Can go over, but is case by case, and $3M is the cap to fund within 5 (business) days.
• In order to lend, the title must be clear, and there must be an appraisal that is no longer than 9 months old.

As I'm finding out in my initial research, for commercial, no one has appraisals, or the appraisal are +2 years old. I've got a few ballparks, and commercial appraisals are looking at a minimum of $2k.

I'm considering looking at SFH, and putting a few of those under my belt, so that I can have the extra cash-flow, to be able to afford the appraisals for the higher yielding commercial. But, I'd only be coming to the table with up to 60% of the LTV, so IDK if there's a lot of SFH I could be closing on, or not.

Any innovative strategies I can use, that will allow me to leverage this 60% LTV, that doesn't require any additional out of pocket, other than the costs for appraisals?

Eddie Starr · Answer

@Don Konipol:

Should we then focus on one commercial real estate deal, pooling resources, to cover the appraisal, and then use the 55% LTV?

Don Konipol · Answer

@Eddie Starr, you are making a mistake common to people considering real estate investing. They first find a lender they feel they can qualify with, and then try to find a property to fit the loan.

I believe that before any investing is contemplated, the potential investor needs to obtain knowledge of real estate in general and whatever specific type of property he is thinking of investing in. If he gains knowledge of the geographical area, so much the better.

Most SFH don't provide much if any cash flow initially. Especially when you create a depreciation fund for replacing items that wear out, like roofs, HVAC systems, flooring, etc. As rents gradually escalate, and you mortgage payment remains constant, your cash flow begins to increase.

If you can't afford to pay $2-4K for an appraisal, you probably shouldn't be purchasing the property. Most experienced investors advise having an operating fund set aside so that you don't end up on the foreclosure list should unexpected expenses occur or you lose a tenant.

A favorite trick of sellers is that for one or two years before they put their property up for sale they stop doing any preventive maintenance, and only do the repairs that are absolutely necessary, in the cheapest way possible. This not only misleads the buyer into thinking that the net income is significantly larger than it really is, but also leaves the buyer with the necessity of making repairs for not only the time he owns the property, but 2 years previous. Many green real estate investors have been bitterly disappointed that expected cash flow never materialized.

What are my options with this sort of HML?

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