All Forum Posts by: Steven Goldman

Quote from @Ashwin Gudipati:

Hello - Looking for some advice on how to execute Rehabs remotely. I understand we need a great team but I've questions like how do we deal with transferring money to contractors without the work getting started (even if it's for a deposit). 

Appreciate anyone who would be willing to discuss over a phone call.

@Ashwin Gudipati My advice would be not to execute rehabs remotely unless you have completed 3 or 4 and understand the logistical challenges from an owners perspective. If you are going to proceed than I suggest that you understand the customs for the payment of a contractor in the projects location. If you are going to advance funds for materials than you should be certain that the materials are delivered to the job or stop advancing funds. A quality contractor does not need to be paid way ahead. You should carefully create a scope of work and a draw schedule. Stick to it. if you front load the payments you may end up with a half finished rehab and no money. Try to put yourself into the contractors shoes if he has been paid a large portion of the contract but not completed a large portion of the work, what incentive does he have to keep working?

Do away with any fundamental notion you have of honor and integrity and follow the money because that is what makes the deal work. If the contractor gets head of you and made his profit he is more likely not to finish the job or come back for the punch list. 

As phases of your scope of work and draw schedule are completed make sure you have someone record the work or take pictures to assure yourself that the work  is actually completed. If you are paying for the HVAC get the warranty cards and information at the time you pay for it. Have an inspector or architect inspect the property before releasing funds. That is the way a lender will operate.

Before the job begins get copies of the contractors license and the building permits and make sure that the contractor is compliant with the laws of the jurisdiction you are working in. Get references and do a judgment and law suit search in the community the contractor works. When you go to sell the property if the work was not properly approved your buyer will have trouble getting financing for the purchase.

I could go on and on. I learned most of these lessons the hard way by doing deals and fixing the screw ups. You can avoid some of them by heeding advice and getting enough hands on experience to have a chance to successfully execute a remote rehab. Good luck and keep moving forward.

Quote from @Angela Goossens:

Lala, it sounds like you may want to purchase with an owner occupied down payment (since you mentioned house hacking) & hopefully with a loan that offers rehab funds too. Is that correct? Ideally, you would find either a Single Family or Multi-Family place & utilize either an FHA 203k or possibly a Fannie Mae or Freddie Mac Conventional Rehab loan to procure it. It's should be possible for you! Have you worked with a local lender on qualifying?

Angel is spot on. If you are going to buy a duplex or triplex that needs rehab and live in one of the units this is your only option. It allows a low down payment and then you must rehab the house.  You must continue to occupy the property for one year or the loan will be in default. After that you can move out of your unit and do it again. See below:

FHA 203k loan for investment properties

There’s only one legitimate way to use a 203k loan for an investment property. You can buy and renovate — or construct or convert — a multifamily (2-4 unit) building and live in one of the units.

FHA allows borrowers to purchase 2-, 3-, and 4-unit properties and renovate them using the 203k loan.

To fulfill FHA's residency condition, you'll need to occupy one of the units yourself as your primary residence for at least 12 months.

You can rent out the other unit(s), and even use the rental income to cover your monthly mortgage payments.

Benefits of the FHA 203k loan for investors

While this might not be your first idea of an investment property, it can be a foot in the door for first-time investors who want to test out owning and renting properties.

It’s also worth noting that since you’d be buying the property as a primary residence, you get access to lower interest rates.

This means you’d have lower monthly payments and pay less interest overall compared to someone with a ‘true’ investment property mortgage.

FHA 203k loan for investment properties

There’s only one legitimate way to use a 203k loan for an investment property. You can buy and renovate — or construct or convert — a multifamily (2-4 unit) building and live in one of the units.

FHA allows borrowers to purchase 2-, 3-, and 4-unit properties and renovate them using the 203k loan.

To fulfill FHA's residency condition, you'll need to occupy one of the units yourself as your primary residence for at least 12 months.

You can rent out the other unit(s), and even use the rental income to cover your monthly mortgage payments.

Benefits of the FHA 203k loan for investors

While this might not be your first idea of an investment property, it can be a foot in the door for first-time investors who want to test out owning and renting properties.

It’s also worth noting that since you’d be buying the property as a primary residence, you get access to lower interest rates.

This means you’d have lower monthly payments and pay less interest overall compared to someone with a ‘true’ investment property mortgage.

A mobile home is by nature mobile. So most mortgage lenders will not lend on the value of a mobile home. Only on the raw land value which is usually capped at 50 percent LTV. This is why a mobile home park has their own financing arm. Most mobile homes have a title which is evidence of ownership. It is almost akin to auto lending. That is a whole different animal from mortgage lending. Most HMLs will not lend to you if their is a mobile home on the lot in addition to the residence. Build a ADU instead if they are allowed under your zoning code. Generally, mobile homes depreciate rapidly, just like a vehicle. Over the last few years the inflationary spiral makes it look like a automobile or manufactured home is appreciating, they are not. Unless you are buying a mobile home park with utilities and a track record I would stay away from mobile homes.

Good morning: Most rehab lenders charge interest on the entire loan regardless of whether you use the construction hold back or not. The lender finances 100 percent of the construction costs because the entire business model is dependent on your achieving your ARV so that you can exit the bridge loan and refinance or sell the property for a profit. The profit or refinance is your exit strategy that permits you to pay them back, since the entire loan exceeds the present value of the property. So you make less money then working out of your pocket because you are paying interest on the construction hold back from the time you draw the money. Some private lenders will lend you 100 percent of the purchase price and rehab. costs. You only have to contribute closing costs. Those lenders usually charge interest from the day of settlement on all of the money and many do not hold back the renovation funds. (Very risky which is why they charge higher interest rates and often more points.)

The  lender funds 100 percent of construction cost to inure that you will have adequate funds to put into the property. You often exceed that number because the lender can not plan for all hidden contingencies and change orders. Its just a underwriting formula that they have created which fits into their credit risk policy. (Credit risk is the potential for the borrower to default) I hope that helps you see the big picture from the lenders perspective.

Ginger Spurlin: You could try to get a credit card consolidation loan from one of the many on line personal lenders. Pay off your cards and then use the new balances to finish the project. I really do not recommend that as you are going to be carrying a large monthly interest payment on the cards and the debt consolidation loan. The online lenders such as Lending club or best egg do a soft pull so it will not effect your credit to try to get a debt consolidation loan,  If you are planning to occupy the property it is unlikely anyone other than your family will lend you money on a owner occupied deal. Good luck!

Quote from @Patricia Steiner:

An LLC does not define the mortgage type any longer. Fannie and Freddie now permit properties to be acquired in an LLC so conventional mortgages apply. Commericial Lenders will want to avoid a property under 4 units due to the disclosure requirements that come with 'residential properties." So, directly to your question, you would be financing with a conventional mortgage.

Hope this helps.

An entire lending industry exists which originates 1-4 unit non owner occupied purchase and refinance mortgages based on the following criteria:

1. 75-80LTV 
2. DSCR1.0 or greater
3. Credit score, higher scores lower rates. Generally 66o minimum for a 30 year. Some lower.
4. Reserves such as, checking, savings, IRA or 401 K or cash value life insurance 6-12 months of mortgage payments.
5. No lates payment on mortgages of any kind
No tax returns just application, bank statements, LLC docs and the other stuff. Underwriting around 30 days to close. Rates are around 7.75-9.5. 

 These loans are a good alternative to conventional loans. No limit on number or amount of properties so long as you have adequate reserves. Obviously they are property specific since the rent has to support the loan amount. These lenders do not discount the rent significantly for vacancies or expenses. Short term rental mortgages are available at slightly higher rates either based on historical income or AIRDNA stats. Good luck and keep moving forward.

Quote from @Austin F.:

Yes, I have one. As described above a local bank(!) has all my firsts, and was willing to put a second on all of them to extend a line of credit. After a year I asked to bump it up to 80% LTV and they did it without hesitation.
Current rate is 9.75%, interest only.

Did your LLC or you own the properties? Is it a fixed rate? Thanks,

Dylan, most lenders and banks will not HELOC a commercial property. Vacation homes, second homes in your own name no problem. I suggest refinancing. Some banks are still at 5.60 for 10-20years, 75 percent LTV on cash outs. Good luck.

Nat Love: If the property is not legally permitted to be a two unit then I would not improve it to a two unit as it will not increase its appraised value for the purposes of financing. For financing purposes, if you can get approved for a fixed rate HELOC why not. You can use that fixed rate money to buy another property. If it is interest only then at some time you will want to start retiring the debt. HELOCS are usually less expensive to originate. Good luck and keep moving forward.

We are in search of a lender who will lend on a  short term rental on a irrevocable trust owned property in Pennsylvania. The short term rental has proven annual income and the guarantor is well qualified. Call Steve @ 267-205-6101. @g2loans.com