All Forum Posts by: Michael Schmalzer

Congratulations @Jordan Moorhead! Best of luck on your endeavor. I lived about a mile east of there for a couple years; very fun & nice area.

@Joseph Lee Congratulations and best of luck!

One more shout out for @Sam Steadman. I know him personally and can vouch for both his character and work ethic.

Best of luck @Javier Sanmiguel!

-Mike

Welcome Travis! I apologize, I have no value to add in terms of the Illinois market. However, I have a few clients that are still able to find very inexpensive homes in this market; if you are willing and able to do a lot of work and take a risk.

One client in specific uses www.hudhomestore.com. These homes are in need of serious repairs, but if you are very handy / efficient and can keep costs down, there is significant equity to be had. For example, (this is a completely made up scenario) in theory you could purchase a property with a 70% primary market loan for $80,000, put $70,000 cash rehab into it (from equity in your house or cash or combination). Let say homes in the area are selling for around $200,000, so your "no longer derelict" property appraises at that number. At this point you have a couple options, depending you financial position and desires you could either (1) cash out by trying to sell the property OR (2) lease it up, refinance, and hold. The second approach would allow you to have significant equity in a theoretically appreciating asset and positive cash flow, but would suck up some cash. Whereas, the first approach would give you significant cash, but no appreciating value or cash flow. A lot of things have to go right in either scenario, but I've seen it happen plenty of times.

A few things to consider with derelict properties: I mean no offense by this, but this approach will be difficult for a newer rehabber. With these seriously distressed properties you will need to work closely with the city to be certain of what you need to fix to bring it to a rentable condition. Smell for mold, be realistic with all the issues of the property, and do not force a purchase. If you need to pass on thirty properties before you move on one, do it. You won't regret waiting, but you will regret getting in over your head. Run worst case scenarios and be honest with yourself about the risk. If it makes sense, go for it!

Best of luck with whatever you choose.

IMO this is an underutilized approach for cheap cash. Especially if you have other sources of income that could, in theory, float the property if need be.

Try community banks in the areas you're looking; they will often be much more receptive to this type of financing. Just make sure you make some principal reductions to the HELOC, otherwise they may ask you to term it out as the line is not being used as a "revolving line of credit".

Feel free to reach out if you ever venture down to the 7 county metro area.

Best of luck Glenn!

That sounds great, Melanie. I'd be happy to have that conversation.

I appreciate you passing my name along!

Best of luck Melanie; I wish you the best!.

Mike

Good morning Melanie,

I can't offer much from the "rehab crew" standpoint; however, I can tell you from a Lender's perspective (I'm Commercial, not Hard Money), outstate is scary. The mindset for many lenders is, "if you have to pack a lunch for a site visit, it's outside your area of expertise," which at this point the deal is effectively a gamble. So the Lender will either need to price the loan package to cover the perceived risk, or pass on it altogether (more likely the latter, as it sounds like you've experienced).

I know you're just starting out, but really focus on building a strong, trusting relationship with a lender. It will be difficult to find a metro lender willing to risk money outstate without a track record. I would recommend, if you are planning to continue to do deals outstate, try to find someone outside of the cities, relatively close to the areas you're planning to invest in, and do every deal with that individual (if they're of high character and reasonably priced). The lender will know the area much better and will be more apt to lend money at a reasonable rate, especially after you do a couple deals with him/her.

If you are looking for a HML, try finding local investing clubs and/or Chambers of Commerce in or near the area of the subject property. If you have 20% down, you could also meet with a local community bank as they are big on long term relationships and will be very comfortable with collateral in their own backyard.

I hope this helps from the financing standpoint, feel free to follow up with any additional questions/concerns.

Best,

Mike