All Forum Posts by: Justin Cooper

Hi @Brittney Housley, I am a hard money lender here in Denver.

That being said,  I don't think Hard Money is the right choice for you in this situation.

Typically on a turnkey purchase, there is no major work to be done, and thus no major increase in value coming from the work. Most times, hard money lenders are lending based on the ARV of the property and want to see the ugly properties with a lot of upside. Hard Money Lenders are usually capped at around 70% LTV of that ARV. But if there are no real repairs and value increase, then they would be at 70% of the purchase price or as-is value. This would signal that you would have LESS down payment going straight into a conventional loan.

Sometimes to close fast or if you are buying from a wholesaler, it might make sense to finance with a hard money lender and then refi into the conventional loan but I would reach out to your conventional lender first to make sure it is necessary.  The last rental I bought I got a conventional loan and we closed in just 9 days. 

Hope this helps and reach out if I can do anything else for you.

Thank you @Sean Blomquist!

Hi @Melissa Harris! Yes totally doable. Some important questions to be asking, when are their leases up? could you try a cash for keys to get them out sooner? do their units need repairs or are they OK as is and still hit that max ARV? Could you remodel the 2 units now and still increase the value enough to get the refi done and then remodel the 2 occupied units at a later date?

several moving parts and things to think about but yes, still a potentially good candidate for the BRRRR

Hi @Robert Lampert! Thank you for the mention!  I am sorry you lost money but so glad you took action and got your first deal done! I agree that we always learn more by doing than by studying!  Although I am sure all that studying help you in the deal.

Hi @Steve Montalvo

I am a hard money lender in Denver and thought I would jump in and shed some light on a few of the thoughts and concerns above.

First off, not all hard money lenders will require 10-15% down.  There seem to be more and more of us everyday so it is certainly worth calling around to see the options out there.  There are some lenders that will lend 100% of the purchase price and even 100% of the repairs, so keep calling! 

Most hard money lenders do not want to go into 2nd position.  most of us want to be the first and maybe even the only line holder on the property.  Also, I think you are trying to access the equity in your primary residence, correct? so even if you do find someone that will lend in  junior position or cross collateralize, they may not be willing to do that against an owner occupied property.  They may only be interested in lending on investment properties.  

Most hard money lenders do want to take a look at your credit but most will take a more common sense approach, focusing more on the credit report than on the credit score.  so if there is a good reason as to why your score is low and you are now digging your way out and things are going well, it will just take some time, then hard money lenders might be able to get comfortable with you and your credit, more so than conventional lenders.'

As a hard money lender, I strive to set my clients up to succeed, and not fail.  When investors fail it is usually because they run out of money.  Without diving too deep into your situation, When I see you wanting to leverage other properties and borrow more money for the down payments, it make me wonder if you do not have a lot of cash on hand right now.  If that is the case, and you find a way to overage this other property, but then still run out of money when a contractor skips out on your or the change orders start adding up, etc etc, Then you are at risk of losing both properties.  Having enough cash on hand is always important and often overlooked, just be careful here.

That all being said, I don't think anyone had mentioned bringing in a partner or private lender.  Both of these might be a good option to either get money on that high equity property or to come in and be a part of your new deal.  This could be a way to spread the risk and maybe even bring someone in with experience and/or time to help the project be successful.  

Long story short, call around to the lenders and explain what you are hoping to do and see if they can find a way to help and keep an eye on your own situation to make sure you will not get over leveraged and in trouble.

Hi @Jack Ventura, Thanks for the mention @Tim Emery!

I agree with everyone above.  First off, it would probably help to get a better understanding of what you are trying to do.  if you are buying rentals, then all of this is relevant and important.  if you are trying to do a fix and flip, then we would probably be discussing alternative forms of lending like hard money as Tim mentions.

For rentals, The bigger national banks and lenders will only lend to an individual and not to an LLC. You could get the loan in your personal name(s) and then transfer the deed to your LLC but as others mentioned, this could trip the Due on Sale Clause. I have heard of a few investors that got popped for this, and not right away. They each too different courses to resolve, one transferred the deed back to their own name, one sold the property and the other refinanced into a new loan that was to the LLC. The bigger point is, if you transfer the title after you get the loan, know that there is a chance you could get called on it and be sure to have weighed and discussed your options with your partner so you can take appropriate action to resolve. If you change the title, the mortgage is still in your personal name and does not change.

If you are buying a rental and you want to buy it directly in your LLC and you want to get the financing in the name of the LLC, then you are best to work with a local bank. You will most likely be looking at a portfolio loan (a loan the bank will keep in their portfolio and not sell). Because the bank will not be selling the loan, they can make their own rules, but know that these rules can change and often do change often. If you hear a lot of "no's" just keep calling as someone will probably say yes sooner or later. When you get to the bottom of your list, start at the top again because there is a chance that those first banks have changed their rules! These loans do not carry the same terms as a conventional loan. they are typically shorter term, potentially very short term, like 5 years, but they might be amortized over a longer term like 20 years. the 20 year amortization will allow for lower monthly payments but the shorter term means you will most likely have to refinance the loan as it might not be paid off in 5 years (especially if it has a 20 year amortization and you are making the minimum payments). These portfolio loans made to your LLC will most likely require you to sign personally on the loan so be prepared for that and to share a lot of personal documents in order to qualify.

If you are looking to flip the property, then a longer term conventional loan is probably not the right fit for you. There might be pre-payment penalties, there will be longer and stricter qualifying, there will be lower LTV of the purchase price and no repair money lent. There might be a few excretions but those loans are even harder to get and the process is much longer to get to closing. What most investors do is pay cash, use private money or a hard money loan. The later 2 are typically focused on the investors needs and thus getting to closing is quicker, there are a lot less qualifying documents, they can loan more money, like maybe 100% of the purchase and maybe even 100% of the repairs you might need and yes, they can lend to your LLC. You will most likely still sign personally on the loan.

If you are trying to buy a rental, that is in need of repairs, then you should again look at a hard money loan to reduce your cash out of pocket, then after the repairs are complete, refinance into a conventional loan (but the loan will most likely be in your personal name!)

Hope that helps a bit.  feel free to reach out again with any other questions or for some clarity.

You would not be able to get the conventional loan if the property is distressed to a certain extent. That is implied in the "cash only" or "foreclosure" or "distressed" descriptions you used. if the conventional lender would not lend at the initial purchase, and you have done no work to the property, then they would still not be able to finance your refi out of the hard money. the conventional lender cannot lend on a property that is in that state of disrepair. The key here would be to use the hard money or your own cash, to fix up the property so that it is now safe and habitable, and could thus qualify for a conventional loan. if you were to try refinancing out of the hard money into a conventional loan with a Fannie Mae Direct lender, then the only delay or seasoning you would be up against would be the time it takes to get the rehab completed. Fannie Direct lenders have no seasoning requirements on their rate and term refinancing and so they could refi immediately after you buy with the hard money, and use that increased value. they will get a new ARV appraisal but they are wanting to see all of the repairs actually completed to be able to use that value. contrast that with hard money lenders who can predict the future, so to say, of the ARV through understanding your scope of work/repairs.

Don't focus on the "cheaper" interest rate from a conventional lender at the purchase stage. Focus on getting the property safe, habitable and rent ready, and focus on doing that quickly through the hard money loan. Then you can refinance into the long term loan. There is the potential, depending on your deal and your hard money lender, to borrower 100% of the purchase price and the repairs and even the closing costs, reducing your out of pocket cash to near zero, and when you refi with that fannie direct lender, they can potentially keep that very little to no money down scenario going by refinancing the entire hard money loan. This is basically the BRRRR method.

You would have to balance all of this with your personal situation and goals. if you don't have a lot of cash, or if you are very debt adverse and want lower loan amounts, etc. But finding a distressed property, where you can get a good purchase price, increase the value through the repairs, and then refinance into a long term conventional loan and have the property cashflow well, can be an amazing opportunity to grow your investment portfolio!

Hi Greg!
Reach out to @Travis Sperr.  He can help!

Hi Beth,

If you are just under contract, and have not yet closed, I would suggest you reach out to some hard money lenders. There are lenders in Denver that could cover 100% of the purchase price as well as 100% of the repairs. This would potentially alleviate a down payment killing your cash position. A bit more info would certainly help with that. you mention the repairs will be between $50-$65,000 and that the purchase price is $500,000. that is a great round number so is that the real purchase price? if not, would would that actually be? and the most important question/number, what is the ARV?

Once we know those three big numbers, then you can crunch the numbers quickly and see if those lenders can actually fund all 100%, close to it, or really if the deal isn't as good as you think. 

I love the ideas for contractors with terms and the more outside the box thinking.  Is there anyone else that you might want to partner with that has some cash? or someone that could come in and be a private lender to lend the construction funds in a junior position?

Thanks Chris!  I am super excited to be speaking at this years event.  It is shaping up to be one of our best!  Come and network with over 300 local investors and vendors!  

Thanks Chris!  I had a great time, as usual, hanging out and chatting!  Looking forward to the next time!