Rehab With Little Or No Money Out Of Pocket
Hey guys, thanks for taking the time to read this. I have been studying and researching for sometime now and have really found some good rehab opportunities. I want to use a HML for the deal. I am inbetween work projects (I am an on-site real estate agent) waiting for my new community to get started. It's about 2 mos away, so money is tight. I am also in the process of buying a house, saving as much as I can for the downpayment. I plan to turn our current house into a rental, refi into an interest only and generate some pretty decent cash flow.
Is it realistic to do the following?:
Buy a property using HML. Put the points, CC and repairs into the HML as well. I know that the ARV must support it. Also, have the work done on a "pay after completion" basis. I believe I have this part worked out.
This pretty much means the deal gets done with ZERO out of pocket. Then either sell, rent or LO. Is this possible?
Brian
That's a topic I have thought about many times .. how much cash you have to come up with to do rehabs, even when using hard money.
To do what you are talking about, you would have to get a hard money lender to roll the points into the loan, and defer all interest payments (payments are typically interest-only) until the loan payoff. Plus your closing costs. I imagine you would have to have REALLY good credit, or some other kind of trust relationship with the lender, to pull that off. Or more collateral perhaps.
The HML should cover the repair costs, as you say (subject to their LTV ratio requirement, often 65%). BUT ... there are a few other things to stump up for. Firstly, insurance. They will require you have adequate insurance on the property, and I understand it is not cheap for a builder's risk or similar policy. Earnest money deposit, City inspection fees, utilities, snow removal or lawn mowing (if applicable), etc. Plan on a whole bunch of miscellaneous stuff that doesn't fall under repair costs or closing costs.
I am setting out to do rehabs with zero out of pocket too. But I don't see it happening using hard money. I am going to use partners, who will stump up for everything (while I put the time in to manage the project), and split the profits 50-50 at the end.
BTW, I also turned my current residence a rental, with a small cashflow, and it worked out OK for me so far.