Looking for loan for upfront purchase costs

Newark, New Jersey
BRRRR - Buy, Rehab, Rent, Refinance, Repeat
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Looking for loan for upfront purchase costs

Steven Bialecki
Rental Property Investor · Galloway, NJ · Member since 2022 · 5 posts · 1 vote

Hello,

I'm a new member and avid reader/listener of biggerpockets.

I recently came across what seems to be a great deal for my first BRRRR property.

I have contacted a few hard money lenders and after doing the math it seems that I will need 60k upfront available.  This would cover 30% of the purchase price, closing costs, underwriting fees, legal fees, appraisal fees, background checks, 2.5 points, full-year taxes, and insurance, and the full year's interest-only payments upfront (returned for the unused period) as a first-time investor.

I have about half of that I am willing to use since my wife and I are about to buy our first home in AZ and am curious about other methods to finance the other 30k?  

Would it be possible to offer someone 12% interest for a 6-month loan of that amount, and offer them a second position on the house?  I'm not sure where to find a lender like that?  I was looking at crowdfunding too, but don't know too much about it.

The numbers:

280k ARV

125k purchase

50k 3-6 month reno

hard money loan 150k 10.5% interest, 2.5 pts, 3k in fees (appraisal, app, background, closing, legal, underwriting)

cash-out refi 5k closing costs, 70%LTV, 6% = 196k which would cover all of the costs and leave nothing in the deal.

short sale, good foundation, and roof, in need of mostly cosmetic work. located 5-minute bike ride from where I went to college (which is notorious for not having enough housing) and a large hospital, 3k/mo rent is very doable and with a 70% cash-out refi, the loan would be like 1200/mo, and another 300 for taxes and insurance.  After property management, vacancy, cap ex, and repairs of about 750.  This would leave 750/mo cash flow.

I am located in CA and this is in NJ, but my parents live nearby there and are retired property managers who can help oversee the reno and manage the property afterward.

I am very anxious to get started, but don't want to pass on this and have to wait another year to save another 30k to finally get this started.  As they say, it's time in the market!

Any help is much appreciated!  Thanks!  

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  • Bob ReinhardBusiness Member
    Lender · Patterson, NY · Member since 2017 · 488 posts · 186 votes
    4y
    Anything is possible ... but let us be practical. What lender will permit you to have a 2nd on the property? That is your major hurdle IMHO.
    Bob
    [email protected]914-861-5501
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  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    4y

    @Steven Bialecki

    Why not bring in an equity partner - you would have better chance than getting a second. Yes you are giving up some of the profits but some money is better than no money. I have a partner who was in your situation and I we did an equity deal, since then we have done 4 other deals as well as some of my friends also have done private loans for her because she is a rockstar.

    Remember real estate is a long play.

    7e investments53 Reviews
    WebsiteView Page
    0Reply
  • Matthew CrivelliBusiness Member
    Lender · MA · Member since 2021 · 1k+ posts · 1k+ votes
    4y

    Others are correct about most lenders (including hard money) not wanting a second lien on the note. 

    What you could do because you are using hard money. You can bring a partner / family member onto the deal via a new operating agreement for your LLC . A partner that could shore up your cash on hand issues and allow the deal to move forward. You would have to split profits, but 50% of something is ALWAYS better than 100% of nothing... @Steven Bialecki

    [email protected]413-348-8346
    Freedom Capital Funding, LLC523 Reviews
    WebsiteView Page
    0Reply
  • Mike Klarman
    Specialist · NJ · Member since 2022 · 1k+ posts · 649 votes
    4y

    Capital is usually the biggest hurdle for any new investor.  I'm saving up myself to get started flipping to build capital.  I've saved up about 100k because I know I will have to float 30k - 50k for 3 - 6 months and I don't wanna be down to 0 when I have a deal.  But I'm flipping the residential real estate stuff and sinking the profits into multis that i will then rehab and refi to hold, but I always want a flipping operation going on with this 150k - 250k residential stuff that will keep money coming into the real estate company.

    I can tell you that 2 points is out there for sure, even as a 0 experience/new investor.  10.5 for a 0 experience is good.  You'd be 12% at most that work with newbies, I wonder if the extra half point is for some kind of buy-down they are having you do without even asking. There should be bo fees for app or background.  On a cashout you can get 75% at most places unless your credit is under 680.

    Forget a second position as an option.  The only time you see that is if one bank funds the purchase but gives no rehab money, you then see a second lender in 2nd position that supplies it.  I'm doing a deal now that has 2 payoffs.  But it is rare and in your case it will not work.

    Like everyone else suggested a partner and preferably a partner with experience and capital.  Experience should improve your terms greatly. 

    0Reply
  • Steven Bialecki
    OP
    Rental Property Investor · Galloway, NJ · Member since 2022 · 5 posts · 1 vote
    4y

    Thank you all for the help!

    That makes sense that 2nd position wouldn’t be much of an option.  

    I guess I’ll start looking for an equity partner instead of a lender as you all suggested.

    If you have any other suggestions, Im all ears.  But absolutely appreciate the help!

    0Reply
  • Bob S.
    Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes
    4y

    Sorry but heck no. You have no experience. Simply just flip the contract to someone with experience, you will earn a fee 10k seems very doable IF your numbers are correct,   learn save and apply what you learn 

    Good luck 

    0Reply
  • Account Closed
    Accountant · San Diego, CA · Member since 2019 · 1k+ posts · 552 votes
    4y

    Sounds like you have alot of profit baked in. That being said a lender in the second position would likely want to see collateral outside of the deal as well to get more comfortable with your lack of experience. We understand there is a first time for everything, but most private money does not want people experimenting with their hard-earned money! The points/interest and collateral would reflect that. Best of luck with your project! 

    0Reply
  • Ryan Deasy
    Lender · Farmington, CT · Member since 2015 · 542 posts · 321 votes
    4y

    @Steven Bialecki

    hey thanks for all of this info. i might be able to offer some suggestions. i know the HML i work with allows use of other funds like heloc, loans etc. he offers a loan on the side to supplement the down payment. let me know if you want more info.

    0Reply
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