In my first blog of this series, I shared a case study in which a bridge loan was the key to not only winning an edge over other buyers, but also saving money on a real estate investment deal. Those strategies work extremely well for a property that is turn-key and habitable. As we know, not every situation allows us the luxury of those same variables and some homes need repairs right away before you can obtain conventional financing. How can you make this type of deal work for you without excessive costs and cash outlay? Part two of this series addresses these concerns and offers more solutions. Not every scenario is going to be the same, the best way to prepare for this is to cultivate a variety of solutions, so you can have the tools you need for whatever situation you may encounter.
Many real estate investment properties aren’t fully livable, and that’s often the main reason a property is an attractive investment. Properties may just need flooring and paint, or they may require extensive renovation. Since traditional lenders require properties to be habitable, investors historically either negotiate with the seller to have repairs completed before they close or they seek other funding options. If the seller is unable or unwilling to make the necessary repairs, or if you prefer to plan and implement your own upgrades and renovations, the typical option is to obtain an expensive hard money loan.
Hard Money Is An Expensive Way to Go
Hard money loans are typically asset-based loans secured for a specific purpose with specific criteria for repayment. These loans are an expensive way to purchase an investment property. Their benefit is that they allow investors who can’t get a regular loan for these uninhabitable properties to buy investment properties and borrow based on the “after repair value” of the property. Their downfall is cost. Hard money loans typically include a 2-3% origination fee plus a 12-14% interest rate. On a $200,000 property, that’s about $28,000-34,000 for only 6-12 months of financing! These types of loans almost always end up costing thousands of dollars and can turn a new home purchase from a sound investment to a money pit.
The hard money loan covers construction and repair costs, but investors pay a high price for it. After the initial origination and interest costs, investors traditionally wait for a seasoning period until they can refinance the property with low-cost, long-term fixed financing. This adds additional time, closing costs and fees to your investment.
A NEW Solution: A Mini-Rehab Bridge Loan
A mini-rehab bridge loan, by contrast, is a more traditional type of loan with lower interest rates than hard money and longer repayment periods. It’s typically backed by the value of the property and is a much more attractive product for real estate investors. At Hurst Lending, we developed a product that allows investors to acquire this type of loan for those uninhabitable properties that need a modest amount of repairs as opposed to getting a Hard Money loan. This is great news both for the individual buyer who wants to buy a home that needs repairs and the investor who is looking to acquire an investment property that needs repairs and that can provide a bigger return on their investment.
In Part One of this series, we discussed bridge loans and how they can be a tremendous asset for buyers and investors alike. Our mini-rehab bridge loan allows you to invest in a less-than-perfect property and not only have a realistic opportunity to get financing, but to get it at a much lower cost. Purchasers can borrow based on the after-repair value of the property, pay one to two points and can typically expect 8-9.95% interest.It’s easy to see how the savings can start to stack up.
No Seasoning: Refinance with No Waiting at The Improved Value
After the house is refurbished, Hurst Lending can then help you refinance at the improved value with no seasoning period (commonly a property must be held for a year before refinancing at a new appraised value). Learn more about refinancing with no seasoning loan product.
For solutions like those mentioned in this post, contact Hurst Lending today!