All Forum Posts by: Patrick Roberts

There are lenders who offer construction loans for investment properties for exactly the scenario you're describing. They're a little more expensive than traditional construction financing, but not much. The biggest sticking point I see with those kinds of lenders is that they generally require experience - if you haven't done something like this before, then they will want someone who has to sign the note. 

I know of a lender on the east coast who specializes in funding investment construction like this. Reach out to Vincent Demarco at I Fund Cities. Shoot me a DM if interested and I'll connect you with him - I'm not putting his mobile on here. I'm not a broker and am not paid on this - it's just a connection/referral.

You need to talk with a lender about your particular scenario before pulling the trigger. There are a lot of factors at play that are hard to what-if over the internet based on a couple sentences of info. Some considerations are the type of loan (Conventional, DSCR, etc), the type of property, the market the property is in, the location, your income and employment, the timeframe on the cashout - the list goes on.

Generally speaking, you *should* be able to cashout refi up to 75-80% LTV of the appraised value after rehab, usually following a seasoning period. The seasoning requirements, LTVs, and drivers of the difference in purchase/appraisal values will be effected by the loan product. I'd recommend getting a finance plan in place before buying. Depending on the circumstances, it's very possible that you're not able to cashout refi the property and you'll want to proceed with a different strategy.

Buying in cash is probably cleanest. I dont think the margins support hard money or two loan closings on this one. 

The limit on the line will mostly be a function of the CLTV on the property, your DTI, and the lender's risk appetite. As far as the use, Helocs are good for quick cash to bridge a scenario or cash shortfall, but are not meant for permanent financing. I commonly see them used in the application you described, although many investors who do this don't fully appreciate the risks they are taking. Sometimes, hard money for rehabs/flips may cost a little more buy may be less risky overall. Just depends on the scenario.

Ultimately, Helocs are meant to provide short-term liquidity. If you're going to use it for rehabs, read your loan agreement very carefully. Most lenders will have clauses that allow them to modify the terms, freeze, or even call or convert the line if certain events occur, to include ambiguous events like changes in personal financial circumstances. You'll want to understand what the lender can do and whether your could manage that change. 

You can if you want, but if this loan is from a well known, licensed, reputable lender, then its similar to getting regular mortgage. The biggest difference with DSCRs is usually 1) prepayment penalties 2) more points 3) an affidavit that you cannot occupy the property 4) covenants and agreements regarding the requirements and rights of the lender to protect/preserve the collateral that may be more aggressive than Conventional. You should absolutely read everything, though.

If this is from some fly by night, off the radar place, then yeah, probably wouldnt hurt to get an outside opinion. 

 Noted (no pun intended)

 I'd love to hear more about the Who to Stay Away From part if you wouldnt mind sending that to me. That's always good info to have

 You'll want to work with a financial professional to hedge your currency risk if you do this. I'm not aware of anyone in the US who will lend against collateral in a foreign country (not saying there aren't, I just don't know of any). Borrowing domestically in your domestic currency and then converting to USD while hedging might be easiest. Wouldnt surprise me if some of the large multinational banks have programs for this kind of scenario.

If you're worried the DTI will be tight and you will need his income, then you'll want to get the loan before he retires. If possible, try to stay at 70% LTV or below; the LLPAs on investment properties get brutal above 70%. Depending on the type of rental, you may be able to use 75% of the appraised rental income toward offsetting the monthly payment (reduces DTI). If you're going Conventional, you'll need to take title personally (not in an LLC).

DSCR loans are pretty friendly towards STR setups, but you wont be able to stay in/use the property at all if you get a DSCR loan. Also, it will be very difficult to use STR income to lower DTI at purchase for Conventional. Once you have a year of rental income history on your Schedule E, you can use STR income to refi (Conventional).

Agree. Charging to review/issue a term sheet and LOI is bad enough. Requiring a wire is another red flag. #1 seems relatively normal

Don't touch this unless you can afford to lose the entire loan. Recovery on a single, charged-off unsecured business loan will likely be less than 10 cents on the dollar. If you decide to entertain this, due diligence will involve digging deep into the business financials to understand cashflow, solvency, and liquidity, his personal finances, and searching for any liens or UCCs in place. 

Given that he's got a long history in business but is struggling to cover $30k in Op-ex and marketing spend, my guess is that this is either not very well managed or is in distress. The fact that he expects $30k for 6 months on a 1.25-1.30 tells me that A) he's either borrowed in the MCA/alt funding/SME hard money space before or is aware of it and B) he's been turned down by the lenders he's already talked to. Coupled with the economic slowdown that's occurring, I'd be cautious to say the least. Borrowing this kind of money to fund aggressive spend on growth in a high gross margin industry is once thing; covering Op-ex shortfalls is indicative of near term distress. 

For docs, at a minimum, you'll want a promissory note, PG, loan agreement, and a security agreement to attach to whatever collateral you can reach. You'll also need to file a UCC, although you'll most likely be stacked behind a blanket UCC from some bank. 

Last thing - APR cap in NY was 65% last I checked. Check your math to make sure you're not violating this or your contract could be voided.