We receive calls every day from people wanting to borrow $20k, $18k, or $27k to purchase an investment property. We simply cannot finance a property that low in price for multiple reasons and one of them is that we must make a certain amount of profit to stay in business. The other is that finding an investor to actually lend that low of an amount is a major task.
So what can we do?
We could look at tying up another property with a line of credit -which I never recommend unless you have a very strong exit strategy- like your primary residence. There are still a few investors who will purchase second notes on investment properties but the cost is not that attractive and the qualifications are fairly prohibitive.
Another route, of course, is to simply write a check for the property. As a general rule (not carved in stone) the minimum loan amounts for conventional financing, especially for investment loans, is $50k (fifty-thousand).
If the property needs rehab it may be possible to acquire the property and finance the rehab using a private loan. The things you want to be careful in observing here all center around how you plan to get out of (repay) that private loan. If you intend to refinance you will need a minimum of 6 months of seasoning on title (how long you have owned the home) to use the new appraised value and repay the loan in full.
Rate and term refinances are based solely on the sales price and will not work for a loan which includes the rehab costs. In other words if the sales price was $20k and the rehab was $40k the rate and term refinance would be based on $20k and not $60k -even if you can demonstrate the $40k went into rehab and upgrade and the appraised value supports the full loan amount.
Obviously if you can sell the home and repay the private loan (hard money) this is a moot point.
Whatever you do as an investor make sure you are speaking with a lender/broker who fully understands real estate investments and real estate investment financing. There are very VERY few of us in the nation who have the level of experience as my staff members at Novation Mortgage. I can lend privately in most states, some corporate funding in most east coast states and conventionally in Georgia and Florida.
I can answer questions from coast to cost. Email me at REIBroker AT gmail.com
THE OPINIONS IN THIS COMMENTARY ARE STRICTLY KEN COOK's PERSONAL OPINION AND NOT REFLECTIVE ON ACTIVE RAIN, NOVATION MORTGAGE, or ANY SPONSOR OF THIS WEBSITE.
EDUCATION BEATS LEGISLATION EVERY TIME. Get your clients, friends and family members to a LENDER RUN home mortgage seminar as soon as possible.
Novation Mortgage, 2501 E Piedmont Road, Suite 201, Marietta, GA 30062 Georgia Residential Mortgage Licensee 20014. Florida Mortgage Broker Business MBB 0703760 FHA Lender - Equal Housing Lender
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NOTICE: I have been writing in this blog since July 2006. Some of the older articles may contain information that has changed. Please check the date and phone me if you have any questions.
Ken - I learned this the hard way when I first started out in the biz. Certain areas of Pennsylvania are renowned for such loan amounts. Solid private money sources are key and it best be known to keep the eyes and ears open as new sources will jump in and out of the real estate investment game. One of my major Rehab Lenders just unplugged that particular product as of last week.
Disclaimer: ActiveRain Corp. does not necessarily endorse the real estate agents, loan officers and brokers listed on this site. These real estate profiles, blogs and blog entries are provided here as a courtesy to our visitors to help them make an informed decision when buying or selling a house. ActiveRain Corp. takes no responsibility for the content in these profiles, that are written by the members of this community.
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Thanks for the good information for investors in the market today.