Financing for a rehabbing project
Hello. I am trying to get into rehabbinng properties in Northern California. How does financing work for such projects? Can I get a loan for construction costs?
Is the interest higher than a regular loan?
Thanks in advance for sharing the information,
Alexander.
It's simple. You have 3 ways to go. You can use your own money, you can use a Hard Money Lender, You can use Private Investors.
Your own money can also be from any credit lines or home equity loans which would be at the lowest interest rates. Hard Money Lenders charge 12 to 18% with 3 to 7 pts. They will lend up to 70% loan to value. This actually helpss in protecting your profit and closing costs equaling approx 30%. If this 30% number doesn't work, look for another project. The other way is Private Investors. They will also look for a 70% LTV but you can get a better interest rate and no points. Don't be cheap on the interest rate with private investors. Your already saving the points by not using a HML and there is really no big difference in 12 to 15% interest in a 6 month period if you structure your project properly. And their money is usually liquid and quickly available when a project makes sense.
Another option:
Institutional lenders (such as small, regional banks) may also have loan programs that permit purchase and rehab costs to be funded in the mortgage. In my area, one local bank calls this a Purchase and Improvement Loan and will make this loan to an investor. Maximum loan amount is 80% of after repair appraised value.
Here's what I did. I found a prop that needed rehab. I then architect draw plans for the repairs. Next I found a contractor to look at the project to see if he could do the job for the dollar amount in the work write-up. I went to a local bank, I told them what I wanted to do. I paid for the banker to send out one of their appraisers with the work write-up in hand. The appraiser gives a FMV based on the stated improvements. As long as the appraised value to cost of property with improvements is 80% or below the appraised value, you have your no-money-down deal.
My unit cost was 40k with 51k improvements, the appraised value 114K. That was a no-money-down deal. The rehab project is underway.
Quote:
On 2003-04-11 13:27, Vern wrote:
Here's what I did. I found a prop that needed rehab. I then architect draw plans for the repairs. Next I found a contractor to look at the project to see if he could do the job for the dollar amount in the work write-up. I went to a local bank, I told them what I wanted to do. I paid for the banker to send out one of their appraisers with the work write-up in hand. The appraiser gives a FMV based on the stated improvements. As long as the appraised value to cost of property with improvements is 80% or below the appraised value, you have your no-money-down deal.
My unit cost was 40k with 51k improvements, the appraised value 114K. That was a no-money-down deal. The rehab project is underway.
Vern,
Were you going Buy/Hold or Buy/Sell with this property? I'm interested in Buy/Sell so I'm looking for options there that will provide loan options with no pre-payment penalties. Any suggestions?
Thanks,
jbwill-IL
Hello jbwill,
I am buying and holding. I look for cash flow. Once my rehab deals are finished I will have a pcf of $717.00 on one and $650.00 on the other. The construction loan has a very low rate. The 30 yr fixed is 6.65%. The same bank is doing both loans. I am going to continue doing business in this same manner until they say "Vern we can't help you any more". Then I will just go find another mortgage company that will do what I want of them (smile).
I am holding because I can make more money holding. The fourplex may only appraise at 119k, my loan is for 92.9k(at 6.65%), rent collect is 1400 per month, after taxes and insurance and mortgage I am left with 717 per month. Plus 27k in instant equity. On top of that everything is new, so no maintenance problems.
Vern,
Is there anyway you can email me. I still had some questions about what you shared in rehab? I know I can check into my area for programs(VA) but if you don't mind sending your email address so that I can email you.
ebony0674@yahoo.com
Done Rbaldwin, check your e-mail.
I just can't believe that there are areas where properties go for $40k.
I live in New York metro area and for a new investor I think the market is away too HOT.
But it's not a problem....it's a challenge
Thanks to our mayor and major increase in RE taxes, we'll see more and more New Yorkers moving away due to cost of living.
This will only give me an opportunity to pick up good deals (I hope).
Hello Lukasz4k,
Everything is realtive. My rental charge is no where near the amount that you can demand in NYC. It all works its self out in the wash.
I will have to agree with the last comment.. I live in an area where I can feasibly pick up homes and properties from the twenties all the way up into the millions as rehabbers.. You have to seriously look at what areas are the most productive and profitable and work from there.. I have a friend who only deals with High end rehabs... I have a good friend who only deals with very low end rehabs.. It is all in what you want to work with and what areas.. Just remember that NYC demands dramatically more rent than other areas of the country...
So let's put that in perspective, maybe where he is $40,000 is reasonable for a rehab.. maybe for you in NYC 100,000 or more is reasonable for a rehab price...
Again take your time and go slowly until you are comfortable with the market and know the market inside and out.. No sense in biting off more than you can chew..
Good Luck and good Rehabbing..
Unique Rehab Loans:
90% LTV of as is value, not purchase price, Loan can be turned into permanent
mortgage. 620 Fico required.
100% CLTV purchase Loans for Investors with 580 Fico.
95% CLTV Investor Loans with a 540 Fico.
90% Cash out Refi's no seasoning.
Stated Income, Stated Assets for self employed.
Foreclosure / Bankruptcy Bailouts.
Mixed use Loans (stores and apartments).
All types of Commercial Loans.
Each loan is structured according to what you are trying to do, rates are difficult to give
without knowing all the details.
How do you find private investors?
Vern & lukasz4k - lukasz4k
you are correct to be envious, because it really isn't relative. Vern you are in an envious area for real estate investing what you are doing doesn't work everywhere just as lukasz4k was realizing.
You are getting in the simplest formula a monthly rental equal to 12% of the appraised value of your rental property. That is way above average.
Take for instance here, a 4 plex would run you very close to 400,000 and rents would be close to $850 a month each or $3200 total. While at first glance the rental numbers look huge they aren't proportional to the increase in costs to aquire the property. Comparing the to properties the same way, that is only 8% of the appraised value. Getting a property to cash flow here like you are able to do so easily there is next to impossible. Do a quick calculation on what the monthly payments would be and you will see just how far from relative it is.
That is one of the biggest lessons for a newbie to take away from this board is that what works for one person doesn't necessarily work for another because of the area of the country they are in.
The thing I am seeing is that in larger or more robust economic areas such as the coasts or in bigger cities the appreciation is much higher and faster, where in smaller or rural areas the appreciation may be less and slower, but the rental rates become much easier to make a property cash flow because of the discrepancy between the values of the properties when you compare the two areas.[ Edited by The-Rehabinator on Date 01/07/2004 ]