Financing An Investment

[AIR]

since I have been learning all new ways of investing in real estate, I would like to start learning about different ways to finance an investment property. So far I have contacted my credit union and asked what they could do for me. I was told I would most likely have one of my parents cosign which is not a problem, the only thing was when I mentioned the loan might be for an investment property that I may rent out they said I would have to go about getting a loan a whole different way including higher interest rate and points. First of all let me give you some details on my situation:

I am 23 yrs old, I work in retail sales (aka I dont make a lot of money), I am a College student, I have good credit(last score was 705), and no debt.

I understand there are many different ways of getting financing, which do you think would be the best for my situation?

[TommyOH]

Well, first I don't see why you would need a co-signer with a 705 score. Second, There are ways of financing without going to the bank. There's owner financing, private lenders, hard money (not good for beginners), and also regular banks. Maybe you should talk to another local bank. It's possible your credit union doesn't favor investment loans.

[Debbie]

since I have been learning all new ways of investing in real estate, I would like to start learning about different ways to finance an investment property. So far I have contacted my credit union and asked what they could do for me. I was told I would most likely have one of my parents cosign which is not a problem, the only thing was when I mentioned the loan might be for an investment property that I may rent out they said I would have to go about getting a loan a whole different way including higher interest rate and points. First of all let me give you some details on my situation:

I am 23 yrs old, I work in retail sales (aka I dont make a lot of money), I am a College student, I have good credit(last score was 705), and no debt.

I understand there are many different ways of getting financing, which do you think would be the best for my situation?

WHA?!?! They want your parents to co-sign???? At your age and FICO score, go to a different lender. Really! This banker must not have taken you seriously. It's their loss, not yours.

Be prepared, they may want you to do conventional way (ie 20% down) considering this is your first one. There are ways of getting 20% down money.

[Aldo]

Generally speaking, Credit Unions don't do NOO lending. If/when they do, it's not going to be ideal financing. Many banks have the same criteria. You need to find a bank that is investor-friendly which may require some shopping around for a lender. Talk to any local investors you may know to get a referral to an investor-friendly bank/lender. If that doesn't work, locate (and join) a local REI group which will surely be able to refer you to the right lender(s).

Of course, seller-financing would be ideal; but that's not always easy to find and there is a considerable learning curve for someone unfamiliar with that type of financing. If you find a deal in which seller-financing is possibility, we'll do our absolute best to walk you through it. There are ways to encourage a seller to finance a deal and we have experts here who may be able to help with that.

The only question(s) that won't be answered is the one(s) that isn't asked.

[eldorado]

What??
A FICO of 705?
and they want a co-sign?
The loan officer is smoking crack!
With that FICO score, I could show you how to get a PG 100K unsecured -on signature only..AND it wont show up on your credit reports-unless you default.
My suggestion is to incorporate (the entity is up to you) and establish business-line-of-credit (BLC's) to do purchases. Remember, it's always easier to do a refi -than it is- an acquisition.
Just remember, unless you only need your cash out refi for a short term, Stay away form HELOC's , (equity lines). they will drive your score down. The upside is-you they are easy to get and you can use the cash out to repay the business line so you build a higher credit line.

[Mtatz]

This is a good post for me as well. Im in the same boat relatively as Air. Im young, don't make much money but extremely interested/motivated.

My credit score is 688, 725, 741 depending what bureau they look at.. but I know most banks would turn me down due to the fact I only have a credit history of just over two years.

Financing is obviously important and Im curious what is the best way to go about getting it. Now just to connect with local investors and see who they go to!

[Randy (SELA)]

Find a bank that is investor friendly. More than likely tho, you will be using commercial loans, which carry a higher interest rate and shorter term.

[AIR]

are there any investor friendly banks that anyone could recommend?

also seller financing?, like a sub2 deal?

[Aldo]

Though a local bank is preferred, Washington Mutual is investor-friendly. Check them out at www.wamu.com.

[eldorado]

Though a local bank is preferred, Washington Mutual is investor-friendly. Check them out at www.wamu.com.

Although WaMu is investor friendly-and their HELOC's are easy and painless to obtain, avoid a them if your planning on holding the property for any length of time. HELOC's will kill your credit score-which will hurt you when it comes time to refinance.

[TommyOH]

Yes Mtatz, if you haven't done it yet, go to a local REIA meeting. Meet some local investors. They can be alot of help with things like financing, and they are a great start to a buyers list as well.

[AIR]

HELOCS, FICO? I did go to the REIA meeting last month, but I will not be able to make it this month since I have an evening class for school that I CANT miss.

[Aldo]

I sincerely hope that you don't have many of those "don't miss" classes. I highly respect your desire for further education, but you'll probably get more 'street smarts' at REI group meetings. When I see a certain person at all or most most of our meetings, I know s/he is a serious investor. A direct result is that I'm more willing to share trade secrets, so to speak, with him/her than with someone who attends rarely and often goes unrecognized. A thought for the future is to schedule classes that do not conflct with REI group meeting dates.

I struggle for the words to describe the importance of attending those meetings.

[AIR]

I sincerely hope that you don't have many of those "don't miss" classes. I highly respect your desire for further education, but you'll probably get more 'street smarts' at REI group meetings. When I see a certain person at all or most most of our meetings, I know s/he is a serious investor. A direct result is that I'm more willing to share trade secrets, so to speak, with him/her than with someone who attends rarely and often goes unrecognized. A thought for the future is to schedule classes that do not conflct with REI group meeting dates.

I struggle for the words to describe the importance of attending those meetings.

I totally understand what your saying and I share your mentality, thats why I am so ticked off I wont be able to attend the meeting this month. I will have to wait an entire month to attend the next one, maybe I will look for a sub-meeting earlier in the month...

[5kids]

A 100% no ratio loan would be a good try for you guys with high credit scores. Of course there are some details I would need to determine if we can make it work. Feel free to shoot me an email with any loan scenario.

Best Regards,

[Aldo]

AIR, your sub-group idea may be better than you give it credit for. Some years back, the group I belonged to had evening meetings. I and a few others I knew worked 2nd shift. We decided to meet for lunch every few weeks and, before we knew it, we had others joining us. We have become an informal REI group with about 150 members with monthly, tax-deductible luncheons. Note that the tax deduction is limited and must provably be a REI meeting. Easy, but necessary.

[AIR]

I am beginning to narrow my investment ideas down and would like to begin searching for ways to finance them. I would like to have my financing set up so when I come across a deal I am able to pull the trigger. I plan to do one of the following:

1: Tax Deed auction (Buy, rehab, and rent) I will need financing for rehabbing as well... Is this possible?

2: Sheriff Sale auction (Buy, rehab, and rent) " "

3: Find a motivated seller, (short sale, sub2)

I am not sure where to start looking for financing:confused: :confused:

[eldorado]

I am beginning to narrow my investment ideas down and would like to begin searching for ways to finance them. I would like to have my financing set up so when I come across a deal I am able to pull the trigger. I plan to do one of the following:

1: Tax Deed auction (Buy, rehab, and rent) I will need financing for rehabbing as well... Is this possible?

2: Sheriff Sale auction (Buy, rehab, and rent) " "

3: Find a motivated seller, (short sale, sub2)

I am not sure where to start looking for financing:confused: :confused:


Your options are:

Hard Money at 12/15% rates w/3/5 points
Conventional Financing with fees and 10% down
Private investor
Establish Business lines of credit with your own shelf corporation for acquisitions -then refi conventionally or sell


IF your current FICO is 675 or higher a business line of credit can be accomplished (100K for a startup)

[AIR]

Your options are:

Hard Money at 12/15% rates w/3/5 points
Conventional Financing with fees and 10% down
Private investor
Establish Business lines of credit with your own shelf corporation for acquisitions -then refi conventionally or sell


IF your current FICO is 675 or higher a business line of credit can be accomplished (100K for a startup)

thanks for the quick response, could you please define hard money? I am not sure if conventional financing will work since I will be bidding on properties at auctions or will it? How do you find private investors and what is usually the % rate? and could you also explain business lines of credit... thanks!

[StepUp]

Hard money is typically from lenders, also, but far less restrictive (easier to qualify on the personal level - based mostly upon how good the deal fits into their lending criteria).

Either hard or conventional can be used for auction purchases, but you typically need proof of funds within a short time period after the auction's close (24-48 hours, depending on the jurisdiction). Relationships with several of each would give you an idea of qualifying and how fast they could fund your deal. Usually, hard money is faster.

Private investors are the "We Buy Houses" guys in the papers and on the signs, or the folks at the local REI club meetings, or the very folks on this and other similar forums. The % rate depends on the amount borrowed, the type of deal, etc. Similar to hard money, an investor would likely seek 10%-15%. The structure of the note is what you pay attention to for the cost of your money.

A business line of credit is typically issued by lenders you have a relationship with, and to a "business." If you form your LLC, s or c corp, partnership, etc., your business has the ability to secure lines of credit with those lenders. Usually, a history is established with the lender before they provide such a line. However, I have seen some posts in the past of an outfit and a "system" that can establish a line of credit in a matter of weeks, and supposedly a lot easier than what the rest of the world knows about. I can't recall the name of the site or the system, though.

Eric

[AIR]

what is the normal rate for a business line of credit? How much can you usually get?

[mike_mn]

what is the normal rate for a business line of credit? How much can you usually get?

Depends on what you consider a business line of credit.

A business credit card can give you 25-30k per card at 0% 6-12mo terms to 18%, depending on your circumstances and what card you get.

A business line of credit from a bank is for just what it says business. If you don't have a business or a real good business plan, you will not be considered for a line. Bank business lines are for inventory, based on accounts payable and recievable. In the sense of a RE investor, your inventory is housing, payables are rehab expenses and recievables are homes in escrow to be sold. It has and can be done, but you need some experiance and a rock solid plan before a bank would take a chance on you. These lines are usually based on the prime rate, again depending on your business.

The other thing to keep in mind is that business line of credit is different than no recourse credit. You will likely have to put up your name for any and all business credit, even if it is not reported on your credit report, doesn't mean thay wont come after you to get it back.

I would focus on business credit cards to help finance rehabs to start with. They don't report on your credit report so that can help when you start having multiple houses and projects going on. Advanta, capital one and citi all have fine programs. And if you have good credit, even a new llc can get one.

[AIR]

my goal this week is to call a bunch of lenders and see what type of loans I can get. What should I say when I call, should I come right out and explain that I am a real estate investor and that I plan to invest in tax sales, foreclosures, etc. and just see what they can offer me?

[mike_mn]

You may be getting a little ahead of yourself.

You bring proposals to banks, banks don't offer anything to you. You are shopping a package to them. If the package looks good to them, they buy it. Otherwise you are talking to folks with no purpose. It is a good practice to keep your phone skills sharp, but does not help you get money.

If you want to make calls, you might be better to call loan brokers. Brokers rules are pretty cut and clear, but banks have no real strict rules for making loans. Without a relationship with the bank, you may have trouble. If you want to approach bankers, you need a real fortified business plan. Not something you put together in a few days. A real business plan encompasses research, trends, marketing plans, projections, etc...this takes time, some would say a business plan written in less than 6 months is worth very little, unless you have collected good data for the plan from someone elses work local to you. You give them the plan, pitch it and then see if it is something they are interested in. Without a written plan, your efforts will be mostly futile to get a blanket line of credit with the bank. And without a history of some success, this will also put you out as far as the bank is concerned.

Your efforts for calling might be better suited to talking to other investors, learn what they buy, and become a good finder for them. Along the way, you can identify what you are good at and then create your plan with that niche in mind.

[Aldo]

AIR, you might consider printing Wolmic's replies and taping them to your fridge door. There's a lot of great info/advice in those replies.

To your specific question(assuming you're asking about an unsecured credit line): The answer is "I dunno". To put you in the ballpark, I have a $50K unsecured LOC at 7.375% with a bank I've used for a lot of years. Your demographics are surely different, so your terms will surely be different.

My advice, like Wolmic's, is to focus on business (not personal) credit cards. The interest rate will probably be a bit higher, but you don't have to jump through a lot of hoops to get what is, essentailly, the same thing.

There is a danger in having credit cards plus an unsecured LOC. It's unbelievably easy for an investor to over-extend him/herself unintentionally. One day you'll need $X and choose to use the LOC because the cards are tapped out. Reality won't kick in until you get your first LOC payment statement and realize that your income doesn't quite meet your outgo.

A word from someone who's been there. Contrary to what you're thinking as you read this, it CAN happen to you. Please believe that.

[AIR]

ok ok ok,
I hear you guys!!! I thank you guys for the replys and the advice:praise: . I understand you must have a business plan to get a business line of credit. Although I have created about five business plans and two strategic plans in school, I know these aren't the same as "REAL" business plans but this is experience. If you look through this thread I have yet to get a straight answer on my question. I really dont know where to go with this question I am LOST... Please someone who has been through this experience HELP. I need money to buy a property through either a tax sale or sheriff sale, I have 2,000 dollars capital, and I want to get the BEST deal possible on my loan.

The one problem I see with a business line of credit is if I buy a property at a tax sale I will most likely need money to rehab it.

PLEASE ANYONE WHO CAN ADVISE ME ON THE BEST POSSIBLE WAY TO OBTAIN A LOAN, MORTGAGE, OR BUSINESS LINE OR CREDIT.

[stallingsorg]

my goal this week is to call a bunch of lenders :clap: have you thought about setting up appointment with the president of the bank's to discuss your purpose of proposal?

What should I say air, you can ask questions like what ltv they lend up to? will they finance 100% of purchase price? are there any areas they won't lend in? what are their terms? do they check credit? will they lend repair money? how much notice they need to fund a deal? will they lend money for closing costs? do they prefer to work with certain attorney or title commpany? is there an appraisal fee? would they be willing to write you a prequalification letter that you can submit with offer? would they would be interested in financing your buyer's?

should I come right out and explain that I am a real estate investor and that I plan to invest in tax sales, foreclosures, etc. no! ask questions and leave your business plan with the president of the bank to review your purpose of proposal.:thumbsup:

[Randy (SELA)]

Air,
Don't take this the wrong way, but the best thing for you to do is get off the couch. Go see the loan officer at the bank you are presently using, tell him you want to invest in real estate, and he will tell you what your options are and how much you can borrow. Then make an appointment with a mortgage broker and see what he says. Mortgage brokers know lots of investors also. None of this will cost you a dime, but it will let you know where you stand. Then hit the bricks and go find a property. Nothing to it but to do it. Until then, it's all just speculation. Good luck!

[AIR]

ok I am hearing two different things, some people are telling me I should not say I am looking for financing to invest in real estate and you are saying the opposite which is it?

[mike_mn]

Air,
Forget the idea of a Business line of credit for right now. You need to do some deals before getting too excited about a bank giving you free reign over 250-500k to do with as you choose, which is what a biz line is.

If you have a property in mind or values, a bank will very unlikely finance you 100%. Your only real option is hard money lenders. But this means you need to purchase the proeprty at 65% of market value AFTER any repairs needed.

100k after repairs value. Purchase price is 50,000 if you need 15k in repairs. Hard money will lend you 100% of acquitision and repairs. But the rate will be approx 12% and it will cost 5-10 points to get the loan.

Another option is to wholesale deals for cash to other investors. You may want to be the investor right now, but without cash and reserves, it is a tough biz to be in.

[stallingsorg]

1: Tax Deed auction (Buy, rehab, and rent) I will need financing for rehabbing as well... Is this possible?
2: Sheriff Sale auction (Buy, rehab, and rent) " "
3: Find a motivated seller, (short sale, sub2) sorry air. i misunderstood you. we have difference type nature of business, difference business plan but we have the same purpose of proposal.:SM084:

:icon_mega some people are telling me I should not say I am looking for financing to invest in real estate no comment! you make some call, you pay a visit and you say what you want to say.:SM056

air, you I have 2,000 dollars capital could invest in your business.

[ZNICK]

I've done some thirty odd deals in the last 18ish months, and have only used financing to get into ONE of them. All the rest have been some type of owner financing or wholesale deals where I used my buyers $ to complete the deal.

Unless you're planning on becoming a long-term "buy and hold" investor you probably don't want a lot of loans in your name... especially if your biz is new and you don't have capital. If your plan is to buy a house and rent it out long-term, then you may want to consider getting yourself a loan, but keep in mind there are other ways. You're fortunate to have good credit, but be careful how many houses you buy, because each one will lower your credit score.

I realize you're considering tax sales and auction properties, but if you look for properties that are 5-6 months before the auction, you can grab them without getting a loan with seller financing. Tax sales take a long time to materialize as well, because of redemption periods. (check with your state, they're all different)

You sound like you want to do rehabs, since you mention $ to fic them up. Why not find a seller of a vacant house and ask them to sell to you subject-to? Make their mortgage payments until you've completed the work and sold. You can get private money, team up with another investor with some cash, get a credit card, or even find a contractor that's slow in the winter months and tell him you'll split the profits with him if he'll fund the repairs as well as do the work. All of those scenarios get your deal done without a loan or any (at least very little) of your money.

I'm not trying to confuse you, but maybe give some advice and suggestions that you can use to get yourself going without taking a big risk or the possibility of hurting your credit before you even get started.

I guess it comes down to your intentions. If you want to buy and rent for a long-term investment, then getting a loan/mortgage is fine. Find a decent lender or broker and get the best deal you can. If you want to buy and repair or plan on selling for a profit within a few years, my suggestions above work well. Any time you can get into a property without your name on the loan, it's beneficial.

If you have any questions feel free to contact me or post here...

Z

[AIR]

:praise: :praise: :praise: First off, YOU ROCK! Thank You for clearing some things up for me. You sounds like you know what your talking about. I am more interested in buying and renting for the long term. Subject to does sound very promising. My next mission: RESEARCH sub2. Anyway thanks again for the great post!:praise:

[ZNICK]

:SM040: Aww shucks... glad to help.

Z

[TexasLandlord]

If you are wanting to buy to rent and hold, I would locate the property you want to buy. When you find a property that will cash flow and is priced below market getting 100% financed shouldn't be too hard. You have good credit so any good loan broker should be able to put the loan together. Talk to a few to find the best deal. Buy something that is occupied so you don't' have to make mortgage payments while it is empty and you are finding a tenant.

If it is in need of repairs, but fully rented you should be able to raise rents after repairs are done. Can you temporarily fund the repairs on your own CC and pay it off with future rents?

Setting up a business and other ideas mentioned sounds awfully complicated to buy your first property. KISS.....

As you acquire more properties financing may become more complex and require business entities.

[AIR]

the only problem is I would like to invest at auctions and such where I will need the money up front... making it a little bit harder to find financing

[eldorado]

the only problem is I would like to invest at auctions and such where I will need the money up front... making it a little bit harder to find financing

That is where business lines of credit come in.
I just got a guy 100K to buy Costa Rican rehabs.:SM103:

[business]

I havent read any of the other threads but have you ever thought about looking for a hard money lender? Some times HML's work in investing groups, and others are private. You can usually find them in classifieds saying " we buy homes any type"

[AIR]

yeah I have thought about HML's but the rates are a bit high, I have been approved for some mortgages right now I am looking for the best rate. I am still thinking about HML's for my initial 10% I need for auctions, I am about 10 grand away from where I want to be.

[ThreeRiversREI]

yeah I have thought about HML's but the rates are a bit high, I have been approved for some mortgages right now I am looking for the best rate. I am still thinking about HML's for my initial 10% I need for auctions, I am about 10 grand away from where I want to be.

Well, dealing with auctions, HML can come in handy to provide the quick access to close as long as you have the cash in hand for the deposit the day of the auction.

HML can also come in handy from the stand point of when you go to obtain conventional financing, you're then looking to refinance, which is generally easier than to obtain a purchase money loan.

Good luck to you and keep us posted on your progress! :thumbsup:

[AIR]

thanks for the reply, do HML's ever do loans for the initial 10% deposit? And then you could finance 100% and pay off the HML?

[ThreeRiversREI]

thanks for the reply, do HML's ever do loans for the initial 10% deposit? And then you could finance 100% and pay off the HML?

I don't know what the time frames are for the auction you're dealing with. I'm ass-u-me-ing that its similar to the ones I've seen where a certain minimum amount (such as $1,000) is certified funds is necessary to get a bidder number. Then, upon successfully bidding, 10% is due, again in certified funds, the same day. In my experience, a typical HML would not be able to get the information from you, analyze it, and turn it around fast enough to get you a cashier's check within, what amounts to hours. (A local equity partner/private lender would be a different matter if they had the liquid assets, they might be able to go to their bank that afternoon & get a cashier's check to be delivered to the Sheriff's Sale by, say, 4 pm.

What a HML -could- do, is take your winning bid (assuming you had the 10% from another source), and write loan up to about 65% of ARV (after repaired value) for the property. That amount "should" exceed your acquisition cost and allow funds for any needed rehab. This will allow you to close escrow days or weeks after the auction, take title to the property, and start getting it ready for sale/rent. During escrow, if there are enough funds from the HML, you can pay off your private lender/equity investor that provided the 10% up front.

Once those repairs are done, you'd either sell quick & use the proceeds from the sale to pay off the HML, or refi & rent the property out. Most commercial lenders will want you to have owned the property for some minimum period of time (6 months or 1 year), but there are exceptions. The refinance will then be based upon the new appraised value of the property totally independent of what you paid for it or what you owe the HML, so it is possible you could actually pull cash out at this point to have for the next deal.

[AIR]

I am seriously having trouble finding financing, it seems like I keep running into this problem. Can someone break it down for me? PLEASE?

[Debbie]

I am seriously having trouble finding financing, it seems like I keep running into this problem. Can someone break it down for me? PLEASE?

What exactly are you having trouble with?

Down payment?
Problem with interest rate?
Banker problem?
Mortgage lender problem?
Length of time of ______ problem?
Lack of good business communication with HML?

[Mtatz]

I recently purchased my first property(April 2nd). I got a 30yr mortgage - so not a HML but I did get 100% financing on the duplex.

If you are interested, PM me and I can get you his number or email. He could probably help you out. He was one of the nicest brokers I've talked to so far, in my very short beginning.

[Debbie]

I recently purchased my first property(April 2nd). I got a 30yr mortgage - so not a HML but I did get 100% financing on the duplex.


Congrats Michael!

You oughta start a thread telling us your first investment!

[seed854]

This is a good post for me as well. Im in the same boat relatively as Air. Im young, don't make much money but extremely interested/motivated.

My credit score is 688, 725, 741 depending what bureau they look at.. but I know most banks would turn me down due to the fact I only have a credit history of just over two years.

Financing is obviously important and Im curious what is the best way to go about getting it. Now just to connect with local investors and see who they go to!

What type of trade lines do you have on your credit. (installment loans, revolving credit?) There are minimum requirements. Shoot me an email and let me know the information and I will let you know what would be the best route for you to go. Talk to you soon.:SM080:

[lpittenger]

I have a couple of options for you, pm me and I will give you more information!

Linda