Your Opinion On This Strategy Needed :)
Ok guys still yet to make my first deal, but considering the following.
List price 54k
Has mold. approx 10k to fix
Another 20k for other repairs.
Comps 90k
hard money @70%LTV = 63k
Maximum offer = 63k - 30k repairs or 33k.
Assuming they took this offer (doubtful), I would have a house that i could potentially sell for approx 27k profit. Of course, it would be less if i held it for more than a month (mtg payments), and hard money would be exxxxxxpensive. And then i have to pay i think 27% capital gains right?
What about this. after the repairs are done the house is now worth 90k, so i should be able to get conventional financing @80%LTV, and 6% interest.
So i pay off the hard money, now i have a mortgage of 72k on a 90k house, paid off the hard money and approx 12k in my pocket from refi.
Now, I lease option the house for about 5k option consideration and option price of 99k (2 years appreciation at 5%)
So I have 12k in pocket, plus 5k lease option = 17k.
I have a mortgage of 72k approx, and sell it for 99k = 27k profit.
If i collected 2 years lease, 8% interest only on 99k that would be another 15.8k
When i sell it 2 years later, capital gains on the sale price - mortgage pay off = 27k, taxed at a lower percent than if i had sold it the first few months.
so
12k Refi
5k lease option
15.8k lease payments
27k when sold
= 59.8 (basically)
Am i missing something here? this seems too good to be true. Im sure i screwed the pooch somewhere 
Also, would the bank let me do an 80%LTV interest only with a balloon so that i could keep my payments low while they are leasing to me?
Your comments welcomed and appreciated.
Woops, forgot to take out my mortgage payments, and the point charged by hard money, but other than that is it doable? realistic?
Thats part of the problem in dealing with real estate, there is always something that we forget or do not see when looking at the property. That is why you need a good profit margin to do deals. I like your idea about refinance. You may wait 3 to 4 months to see if you can sell for cash. Hard money guys I know want 4 months minimum interest any way. Refi in 3 months may be a good idea especially if no activity. May have been a typo but most hard money lenders vharge 5 to even 10 points and not a point.
Good LUCK and HAPPY HOLIDAYS
Hope this helps some
Ted Jr
yeah i meant points plural lol it comes out to 16% a year. i m not sure what the minimum is, i need to check into that first
"So i pay off the hard money, now i have a mortgage of 72k on a 90k house, paid off the hard money and approx 12k in my pocket from refi."
Another mistake: 72k - 63k - closing costs is not 12k!
The idea seems good and looks like a variation of some of what I am trying. I think the basic idea of acquiring at a discount and refi money back out is good assuming there is cash flow. In my case I buy with cash and then refi the cash back out. Your choices after that are dependent what your goals are.
Lease optioning at the back end looks good since it gives you more cash flow (with tax deferred option consideration), you have a tenant who will likely take care of the place and a buyer as well (you don't need a RE agent to sell property).
Instead of doing a no seasoning refinance, why don't you just get an equity line? If your credit is good you should be able to go up to 70% LTV on non owner occupied stuff. I was going to do a no seasoning refi, but luckly I went to Wells Fargo instead. They paid all costs, including appraisal, and the interest rate is about 4.5%, and can be interest only if you want it. I'm sure in this competitive loan market most banks will work with you on an equity line if your credit is good.
Andy
well the idea was to get out of the hard money loan, because the interest on that would be killing me every month.
maybe i misunderstood u, please elaborate
We did a deal very much like this last year. You should definitely give yourself a cushion for the unknowns when rehabbing. Also, check into the the equity line suggestion because that is the best route to take in pulling the money down. However, keep in mind it would only be at 70% of the equity and you could probably yield 95% with a refi but have to pay higher fees. Also, with the new regulations, you may have to wait at least a year to refi. Many lenders are following suit with Fannie Mae guidelines to deter flipping. The guidelines say one year and you must be able to document the rehab costs to support the higher value for such a short period of time. We were able to pull down $40,000 after the year waiting period. Just check out as much as possible before moving forward. Hope this helps.
Year wait is a must...for conventional.
BAD BANKS!!!!
All loans will go off sales price within 1 year. They don't know what the word appraisal means for 1 year.
[addsig]
I have a local (read smaller) bank that will do 80% LTV after fixup, and thats appraised value. Check the smaller banks, normally you will find them to be more creative.
One factor I always put into the equasion is my time. Are you doing the repairs? If 12k is the worst case senario would this be worth the time you will invest in it? For instance, if this is only going to take a couple weeks (even if the payback is months away) 12k is a great deal. If the work is going to take a couple months of your time 12k may not be worth it (it wouldn't to me).
Ron
PS I agree with telemon- small local banks have been great for me.[ Edited by ronjung on Date 12/24/2003 ]
I know of a couple of lenders that have rehab loans and a know a lender that will do 100% Full Doc Investment loans and 95% Stated Investment loan.