Hi! Owner is willing to finance inherited home at 0% interest with 10K down but it needs about 30K in rehab. What are some strategies I can use to make this a long term buy and hold rental? If I BRRRR this deal I can only get some of my money back and I lose the 0% interest loan. Any suggestions on a better strategy?
Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
7y
Instead of doing a refi on a 0% loan, why not look at a HELOC to get some additional funds.
You could also ask to defer making payments for 6 month to the owner to get through the rehab. You could offer him a bonus on the back end when you sell for a smaller down payment.
Rental Property Investor · Portland, OR · Member since 2019 · 73 posts · 49 votes
7y
80% of 130 is 104 so that’s only short of getting your entire purchase plus rehab investment back by 1k. Where is the 10K down and 30K for rehab coming from? You can take a little more time on the rehab at 0% interest (though you’ll have no revenue to offset the principal payments until it’s rented so that’s some carrying costs). If the numbers look good after a refi then it’s still a good deal and you would have at least gotten a good start with the 0% interest even if it is only a short time. If you don’t need the 40K back then you could still benefit from the 0% interest on the remaining 65k as long as you want to…
Rental Property Investor · Melbourne, FL · Member since 2011 · 3k+ posts · 2k+ votes
7y
What a deal! Sure beats 12% hard money that I've paid recently or the 6% interest only that I have negotiated on my last two deals. Those terms would enable me to go forward with renovations until such time that I need to refinance without having onerous monthly payments.
Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
7y
Instead of doing a refi on a 0% loan, why not look at a HELOC to get some additional funds.
You could also ask to defer making payments for 6 month to the owner to get through the rehab. You could offer him a bonus on the back end when you sell for a smaller down payment.
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
7y
You may not be concerned with this, but it is a bad idea for the seller to lend this at 0%. They may think they are avoiding taxes on the interest income by doing this, but the IRS could hold them responsible for taxes regardless as "imputed interest". The IRS publishes tables of minimum interest for various loans and as a seller it is best to follow these guidelines. This won't come back on the buyer.
Obviously refinancing a 0% loan makes no sense under any circumstance. You can still pull out equity with a HELOC or any type of secondary loan. It is basically a "second mortgage" or second lien position is what this is called.