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Elizabeth,
This reply comes from the Jack Miller school of thought.
Don’t get the HELOC yourself, get your investor to get one from their bank, lend the money to you at another rate and create a spread.
This way you are not on the hook to the bank if the deal goes sideways.Oh yes, and double and triple check your numbers to protect your investor. Better you should lose $$ than your investor.
Because when it works out well, you have a source of funds you can count on for a long, long time.So will this apply to my own long term hold? I just acquired a property that I am keeping as a rental and I need to do some light rehab work on it. Would I find an investor who will create a HELOC off of their existing home and lend me the money at a higher rate than what they are paying on their HELOC? If the deal goes sideways, I am still on the hook no matter what so what is the benefit of not doing a HELOC on my own home for my own rental property?
Elizabeth,
Don has a good point. It IS better to have investors that have liquid cash than those who borrow it.
No question. I’m saying its an option.It would certainly play better for short term $$.
To answer your question, the difference is who you are on the hook to — an institution or an individual.
Thanks Don and Mike. The owner is carrying $180k at $700 a month and the property is worth around $270k ARV. It could use approximately $15k worth of repairs but it is move in ready now for renters (and had renters who just moved out) so I’m going to get it rented asap. The area and the size of the house rents at between $1200 and $1600 a month so it will cash flow right away.
Do either of you have any tips for finding private individuals who lend to real estate projects like this where they would be in 2nd position to the seller financing and pitching a request to borrow those funds? Should I borrow enough to do the repairs and also pay off the seller altogether and then the lender would be in first position?
Taxes and insurance equal $2210.64 a year total. This a no money down, subject to carry back so I pay her mortgage of $700 a month and after the first 6 months, she wants an installment of $9,000 at that point and will extend the $700 a month for up to 5 years after that. She is ok with carrying the loan as long as she gets her spread of $9,000 in the first 6 months.
I am exploring doing a Highest Bidder Sale for this property instead of putting any money into it and keeping it. It cash flows nicely now if I rent it out but I won’t have the $9,000 built up in 6 months from this property, plus there will be a balloon in 5 years which won’t come from the rental income alone in that short amount of time. I don’t want to take out a hard money loan if I don’t need to. Still exploring ideas……Sell now or try and come up with money later to pay it off or refinance in 5 years.
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