Rehabbers Must Know How To Find Investors and Find the Money for Rehabbing!
We have to Help Our Buyers find the money too.
Solutions to the question you'll find here...
The Question Submitted by Dave:
Went to Country Wide Mortgage Company and Dearborn Bank to see if anything could be done to free up some money from investment houses.
Neither finance company would offer me an interest rate reduction or a loan for additional rental units.
Where's my Government bail out?
Any suggestions on how to find investors?
The topic I'm having the most problems with as a Real Estate Investor is:
How To Find Investors? Creative Financing?
Answer from Joe-the-Rehabber
Reply to creative financing and how to find investors.
Not all banks may be willing to reduce interest rates on rentals, but some banks will!
I checked it out!
The following scenario is about a Commercial Loan...
My bank is willing to do an interest rate reduction (modification without refinance) but it will cost me!
My bank said, "We will share in the savings" they refer to as profits.
The bank wants 60% of the savings paid in cash up front for the loan modification.
Example: For a .75% interest rate reduction over the next 4 years the savings is about $6,800.
(Note: it's a commercial loan that renews every 5 years)
The Bank will charge $4,200 cash up front to reduce the rate. I will save $2,600. It's not the greatest deal however, my Bank is willing to work with their customers. But you do have to take the initiative to contact your Bank Lending Department!
In today’s market, there are houses selling in the less than $5,000 range and very nice fixer-upper houses in the $50,000 range.
Flipping a house in the $5,000 price range for a profit of more than $2,600 in a few months would be a better solution than being concerned about a 0.75% interest rate reduction in my opinion.
For me, the above alternative keeps me active with working on properties, because that's what I really enjoy doing!
I Have 6 Choices:
1) Reduce the interest rate through loan modification
3) Continue to invest and Rehab as usual
4) Create new money from my business and pay it off
5) Walk away and let it foreclose
6) Figure out how to find investors, find the money, and keep moving forward.
Investing in Real Estate as Usual:
The labor for remodeling houses is about the same amount of work it has always been! Actually, with new material technology, some installations are easier than ever before!
A) For those who look for it, we can still find the money.
B) We know how to find investors; network, advertise, and present our business plan.
C) Land contracts and private money have always been viable methods.
D) Banking rules are simply going back to the early days of qualifications; if you qualify, they're lending money.
The dollar amounts and interest rate amounts may have changed but, the Home Rehabbing System is the same...
The Same Old Rehabbing System:
The Primary Residence loan...
My mortgage lender is working out a loan modification on my principal residence because it doesn't qualify for a new loan refinance; part of the Government Bail Out program.
It won't appraise for what the mortgage balance is!
Because it will not appraise causes a hardship of devaluation.
They have a process and forms to submit based on the New President's Programs.
An astute investor walking away from a property does offer some big advantages by walking away from a huge debt that could take 30 years to pay off. The temporary downside is a damaged credit score for a few years...
...That's being creative and courageous and I've interviewed a few who are taking that route.
In my opinion, it wouldn't be my first choice. It is a valid option if all other efforts and opportunities to adjust to this market fail.
Back to the Commercial Lender:
Should I convert a commercial mortgage into a personal mortgage?
I Checked This Out Too...
My apartments are in an LLC with a commercial mortgage. Interest rates are higher because it's a business loan.
Terms of this mortgage are only 5 years, but amortized at any length up to 30 years.
The advantage of a business loan in an LLC is, it doesn't show up on a personal credit report that could affect our personal debt to loan ratios!
There are some considerations to refinance into personal loan for a reduced interest rate with a 30 year fixed term.
Talk with your Tax Adviser for your best financing advantage.
An Umbrella Liability Insurance Policy for at least 2 million was recommended by my Insurance Agent if I decided to eliminate the LLC.
After discussing both options with the Lender, personal loans on investment properties cost more!
A 3% loan origination fee and interest rates very close to the commercial lending rate makes this alternative a poor choice for me.
The lost benefit would be losing my Business Status to grow my business!
Business loans are not reported on our credit reports!
So... By putting my business loan into a personal loan,
the personal loan would show up on my credit report,
which would change my debt to income ratios,
and would reduce my overall credit score.
Remember: Business Loans are Not Reported to the Credit Reporting Agencies!
There are options and alternatives!
If the two lenders you checked aren't offering any financing solutions, keep looking, I always do.
If you don't know how to find investors, consider private investors from people you personally know as a favorable option.
Limitations that Institutional Lenders and Bank Loans will eventually limit our ability to grow!
Having investment funds readily available to us is the motivation to find private money lenders that will work with you!
People who are qualified can always find the money!
Successful real estate Investors know how to find investors to partner up with to grow large companies.
People who are not qualified can rarely find the money and don't know how to find investors unless they are; ambitious, persuasive, persistent, willing to take on more risk, and work for less profit!
There are Family and Friend's money that exists, that when used with caution, can be a win/win proposition!
This is happening more now than ever!
-- I recently sold one of my properties and my buyer found family money for the down payment.
-- I've helped 2-Buyers understand and present their situation to family to borrow money to buy homes in the last 3 months.
-- I am working closely with a friend that has borrowed money for 2 investment houses. One deal was money from a friend and the second deal was money borrowed from a fellow investor.
So far, everyone I've coached to ask family, friends, and acquaintances for money, finds it!
When we have a burning desire to find the money, along with a viable plan and proof of ability to repay the money... The money will find us!
There is some dilemma with people borrowing money from relatives. There is an above average rate of failure! I caution those lenders regularly.
How to find investors can be difficult...
Asking for money from family, friends, or relatives does work, however...
...It involves an emotional and psychological sales pitch.
History will show that asking for money is easier than earning it!
Now, whether that person can actually make a profit from the money they borrow,
is the exception to the rule,
and not the normal outcome.
The proof is plainly visible in a down economic market on a global scale...
People with money have it for a reason!
They are reluctant to risk it to those who have no money and are not qualified.
Unfortunately some people with money may become greedy trying to achieve a higher than normal rate of return; on a risky investment, or lend it to a risky borrower for their investment ideas.
Hopefully that is money they can afford to loose according to the financial planners.
After All That...
I do know there are opportunities to reduce rates and borrow money even in a down market!
Knowing how to find investors takes time and effort.
There will be costs and risks involved as usual.
Anyone who works diligently will usually get what they're looking for, eventually.
It's interesting how after 30 years I've changed my real estate investing business plan. I've known the secrets for decades but just didn't implement all of them...
...Create money first, then invest in real estate.
That's a mighty profound strategy.
Just because we know how to find investors doesn't mean that's the only strategy.
I know about leverage and the benefits of ROI on leveraged money. I've used it on many properties since the 1970's.
I found out that...
The most profitable properties with the best cash flow are the properties I bought with cash!
My new and current desired outcome, burning desire, primary objective, how ever you choose to focus on it, is to create money first.
I have in the past and I am in motion to do it again.
The difference between "Finding the Money" and "Creating Money":
-- Finding the money is asking for it.
-- Creating the money is earning it.
The problem with creating money is many folks do Not want to work that hard for it.
That's wonderful because: The Competition Is Low.
One problem with trying to find the money is that the borrower is actually prey for predatory lenders.
Borrowers become stewards of the lender and the lender makes most of the profits!
Now if you asked me how you can "Create Money", that's a different story.
I've already answered that question and you can read about how I've been working my strategy to create money and why. (Click here for What Creates Money.)
I hope these ideas and suggestions are helpful for you.
What do you think? You can reply or ask another question at Contact Joe.
Thanks for the Questions,
Joe the Rehabber
P.S. If you haven't seen my Lifestyle of a Rehabber and why I love what I do, click on Rehabber Lifestyle
Dave's Reply To My Answer
Looks like you are doing a great job, looking forward to the web site. Keep up the hard work.
That's it for this question. As you can see, a short question can require a very long explanation followed by a short follow up note.
That's why I founded Ask-The-Rehabber.com, to finally publish these lengthy explanations to short and complicated questions.
How to find investors is such a common question! However, it's uncommon that people make the effort, to find them!
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