I have wanted to write about this subject for awhile. Now before I go any further, I should point out that the Rehab I'm talking about has nothing to do with any addiction. (I know, you are so disappointed and the title was such a tease:-). This has everything to do with newbie and/or seasoned Real Estate Investors who seek to buy properties and then Rehab them for eventual resale.
Here's a concrete example of a typical and very doable Rehab Transaction...
Customer is buying a distressed property for $45,000. He believes that he can fix it up to salable condition for $46,000. When the property is done, it should be able to sell for about for $180,000. (Based off of an After Repair Value Appraisal)
In this case... we are loaning the borrower $96,400 which is 54% of 180,000! (I can lend up to 80% of the ARV value if that is needed)
In other words...
We are giving him:
| the 45,000 to buy the property |
| the 46,000 to fix it up |
| plus any money for closing costs... (no cash in your pocket as I also mention below) |
He doesn't need any of his own money!!!
A few notes in regards to these products:
- After the property is brought up to par, you can immediately sell or refinance to get cash-out. If you chose to do a cash-out refinance, make sure you contact a Mortgage Company whose Investors don't have seasoning requirements (having to hold onto a property for 6 or 12 months after buying it before you can take cash-out).
- Currently, with these Rehab Loans, you can't put cash in pocket on this particular product unless you refinance after the fact.
- Minimum Credit Scores are generally required to be 660 and you must be able to fully document your income to qualify for the loan.
The thing that isn't often mentioned with Rehab Loans is the real value. Sure, you can make a pretty good living doing these deals as a Real Estate Investor, yet there is another very tangible benefit deeper than just financial rewards. Revitalizing properties help the growth and health of the community. It's a Win-Win proposition and that's what any successful Real Estate Transaction is all about.
For more information on Rehab Loans in Pennsylvania, feel free to email me or give me a call.
Jason Sardi
First Choice Equity Group Inc.
Mortgage Consultant
610-439-2166 ext. 229
Karen - Thanks! I always love a 'provocative' title.
Sis- Sounds similar, yes. Depends on the actual condition of the property.
Danny - That's a fact. Some areas are just perfect for this type of loan.
Excellent info, Jason. Learn something new every day.
Now, if only people in my area (vacation/resort) would realize that it's downright next to impossible to buy something other than a teardown for $45,000...even the trailer homes (not campers) that are that price are crap....LOL
Jason,
Good post!
I'd like to know more about the program you're offering.
As you know I teach "Flipping" I have a problem with people who think all "Flipping" is rehabbing, it's not! Rehabbing, anything more than clean up and slight redecorating makes you a contractor. Whether professional or armature contracting is a spectialy that should not be mistaken for investing! Rehabbing is a job, weather or not you personally swing the hammer.
I'm all in favor of rehabbing if you know Constitution! I'll even include rules 1 & 2, for rehabbers.
1. The profit is made at the purchase, you've got to buy right!
2. You need allot of money or a great lender.
Keep up the good work!
Bill
Jason,
I'm not sure about the program but I would touch on something you mentioned..my biggest sticking point is the seasoning of the loan issue. Of course the bank will want to justify why they paid lets say $91,000 in essence after repairs plus they are probably into it for a few more dollars for maintenance taxes etc. I am aware of this from first hands on experience. I have a bough a few properties over the last years for investment purposes ...I rented and held a few and some I .....lets use the word turned over a few quickly f you understand my pun. We had a few like this that were able to close within 3 months.
We have had a few rehabs and we used cash so there is no argument there.
Excellent post and very timely. As you know, I had a 'rum lunch' with my AR girls today, Sarah Eubanks and Sara Goodwin, and I read this to them so we could discuss the relevance of this type of product in our area. They brought up some excellent questions, which I promptly forgot and blame on the rum ;-) All Sara's fault!!
Jason..One of my Investors is neck deep in 3 projects, wants me to help him out of his financial hole..Its difficult to buy and rehab into a declining market..My advice to him was to let us handle his investments from now on, luckily he still has a pile of money left...As William stated above, its all in the buying..we could make a list of whats important in rehab
Bill & Mike Norvell Sr. - Thank you so much for your informative additions/insights to this post, I hope others who may come across can learn from your experiences & knowledge. And Mike, Sardi doesn't give Gold Stars....typically:-)
Jennifer - Ahhhhh....that rum thing. Personally, I stay away from the stuff....it gives me a tad bit of 'Memory Loss' as well. Would love to hear and explore the questions....an old psych trick would be to feed you more rum on a different occassion and bring up the subject matter again, odds are you may remember:-)
Neal - And in my experience, a smart lending instituition will ask the question, "Why should we use the appraised value rather than what it sold for to lend against in such a short amount of time?" It
shouldhas to make sense, very few Sellers are that charitable with equity.....Jason - you are right, Wilkes Barre, Scranton, and even Carbondale is a good place to get good deals that would work for this. Carbondale may be a bit higher than Wilkes Barre, but it's so drastically different than Lake Wallenpaupack prices that it's like another world.
Carbondale needs serious revitalization. It has a lot of old homes with character that need a shot in the arm.
Good Points, Jason. What folk should look at is the percentages you quoted. Most Investor's in the Washington/Baltimore area won't look at a property unless ARV < 65%.
Marc - Thanks my friend, I'll see if these particular investors also do those loans in your area.
John - One of the things I learned and excited me about this business from day one is that you learn something new everyday....
Dan - Depends on the area, as you move west in Pa....the inventory tends to be greater.
Matthew - Actually, one of the investors allows the person who signs onto the loan to do the work...as long as they have the credentials. For those who are about as competent in repairs as yours truly, a Licensed Contractor is required.
Karen - Good points! I am going to try to get the word out with Real Estate Investors interested in areas such as you pointed out. Revitalization is the 'not so hidden value' of these transactions.
Mattew Rosov- I'm assuming you mean rates....I priced a deal recently at 75% at 8.375% (no pre-payment penalty). I thought it was a heck of a deal and with that particular investor's exit strategy, it didn't matter if the rate was 14%....they weren't holding it long enough for it to really matter.
M.B. - You are probably right but I did want to point that out as just another benefit of these transactions.
Kim - Thank you for stopping by, I'm not that hard to find:-)
I wonder how useful that would be in areas where land is so highly appreciated that the margin for profit is very slim... The house is almost inconsequential compared to the land unless its a McMansion.
These used to be "easy" because of LTV/CLTV allowances. With that window reduced, finding properties and projects where this actually works is harder and harder. Thanks Jason!
Sardi,
Interesting and great topic to post about.
Ruthmarie - In certain areas, this particular product would certainly not be as useful as in others. Real Estate is local....not national.
Rich - True to some extent, easier in some areas versus others. Finding the deals isn't the easiest of tasks but can reap very fruitful rewards.
Gary - Thanks, haven't saw this subject matter come up much.
Jason - missed this when it first came out. Good information and it's much appreciated.
cheers
*UPDATE*
The Investor just introduced changes to this product. They now require 5% of the borrowers own money into the transaction for Investment Properties and 3% down for Owner-Occupied Properties. That said, the pricing and rates are more appealing than before, it's just that you can't do it with no money out of pocket.
Jason,
Thanks for writing this; I've featured you in this week's Mortgage Pro Week In Review--1/28/2008 Through 2/03/2008
Mike in Tucson