Here’s the thing – there will always be experiences that provide you with a new lesson, a new perspective or skill when it comes to real estate investing.
I aim to teach people the correct fundamentals of successfully investing in rental properties. The right foundation is the key to the whole thing.
However, there are so many little variables particular to your life or your deal that no one can give you a full proof plan for. Anyone who says they can is lying to you. A good general framework and solid foundation is what you should seek in the educational space.
With that let me share with you one of the “variable” experiences I have recently dealt with.
Driving the Snakes From the Weeds
Promises, promises, promises. These are something you will get many of in real estate. Whether it’s a broker, lender or agent.
The thing is sometimes it’s tough for them to deliver on such promises because they are not the only cog in the wheel. Many others have to perform for that promise to be met.
Or sometimes, someone just over promises and then can’t deliver.
My Homerun Property
We stumbled across a little 2 bed home that was part of an estate sale. It was listed for 80k, we offered 65k cash. We didn’t get it. They took a financed offer of 85k. Can’t say I blame them, but a month later the agent came knocking on our door as the financing did not go through.
So they asked if we were still interested. I said yes and the 65k was still my highest and best. They took the deal, we closed a few weeks later, October 21st to be exact.
The renovation on the property was light. New oil tank, new flooring, bathroom update and interior paint. Reno cost us roughly 15K.
We got it listed three weeks later and had a tenant move in December 1st.
Could not have gone any better!
“We don’t have seasoning – but wait, we do”
So now I need a private lender that will lend on my property that does not meet seasoning requirements. Seasoning means that you need to own the property X amount of time or have had it rented for a specific amount of time.
I found two lenders that assured me they do not have seasoning and as long as the rent covered the necessary debt service coverage ratio (DSCR) they would be able to lend on the appraised price.
We get the appraisal done and it comes in higher than I expected at 145k.
Sweet! Freaking homerun – or is it?
Doing so well so fast was a bit of a blessing and a curse.
Maybe the lenders don’t believe that we can add such value in such a short turnaround, I don’t know. What ends up happening is the initial lender tells me he can’t get final approval and they will only lend on purchase price plus reno cost.
Want to know why? – Because the PROPERTY ISN’T SEASONED.
The amount offered is essentially useless to me. So I go to my back up lender (remember I said I had two) since I am the scardedycatguide and always cover my rear.
So even though a couple weeks have been wasted and caused some inconvenience during the holidays for me I’m able to get things going with the back up lender.
The good news is they can use my existing appraisal. I don’t need to get another done – awesome.
I’m looking to pull out 100K, which is less than 70% loan to value (LTV) on the appraised price so should be a walk in the park.
This lender feels like the appraisal is over inflated. I looked at the comps used and they are rather spot on, but okay give me less – it’s fine I have room.
The loan they offer is for 85k, which is basically purchase price, plus reno, plus closing costs when it comes down to it.
Hmmmm….sounds like the same problem as the first lender.
There are many lenders that only have a three month seasoning now, which I’m still a few weeks away from. I game planned for closing on a loan this week, not come February though.
I already have the wheels turning on one of those lenders so I’ll survive but things will be a little tight this month as I have two other reno projects going on right now.
Going forward I will be sure to operate on the three-month time frame. Even if there really are lenders out there with no seasoning periods.
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