Most Real Estate Investors dream of that SWEET DEAL where they don’t have to put any money in and they can turn around and walk away with $30,000 , $60,000 etc… Is it possible? Are there Real Estate Investors out there doing this? Can an Investor really get 100% financing on a Rehab loan?
I’m here to tell you that it is VERY possible, and it’s definitely happening. Here are the 3 ways that Real EstateInvestors are successfully investing in real estate without using their own money to finance the deal.
1. Find a Really GOOD… A Really GREAT Deal!
Too many times the deals that come across our desk aren’t even good deals, in fact they’re just plain bad. We do see plenty of Good Deals that for the right investor it’s a great opportunity to make a solid profit. Lastly, there’s the great deal that has everything lined up that regardless of your credit, job status or current income you can get 100% financing.
Now here’s the deal, 100% Financing does not mean that you don’t need to have some money to get the deal done. It means that we’re going to provide you with 100% of the loan amount and 100% of the rehab costs. 100% financing does not include the following fees:
- Earnest Money
- Inspection
- Title
- Origination
- Compliance
- Doc Prep & Processing
In short, with this strategy you should plan on bringing at least $5,000 to the table.
So let me give you an example:
You find a home with an After-Repair-Value: $150,000, We loan up to 65% of the ARV, so it would be an amount of $97,500. The anticipated cost for rehab is $20,000. Based on these numbers the purchase price could be no higher than $77,500 in order to get 100% Financing
65% ARV: $97,500
Rehab Costs: $20,000
A Purchase Price No Higher Than: $77,500
In the end you’re looking at a Net Profit of roughly $45,000 (after closing costs) and you only had to come up with $5,000 up front to get the deal closed. If you’re looking in the right place and doing your due diligence you can find these deals and you can make a lot of money.
2. GAP Funding
We see a lot of deals that come through where the margins aren’t quite there to offer 100% financing based on our terms alone. However, we have Gap Funding partners who are willing to review the deal and based on certain criteria will agree to take a second position and fund the difference of what’s outside of the terms that we’re willing to lend on.
Typically with GAP Funding, the funder is willing to loan the difference for a split of the profits. In exchange they’ll not only provide the additional funding but they’ll also cover the cost of closing, etc…
So let me give you an example:
You find a home with an After-Repair-Value: $150,000, We loan up to 65% of the ARV, an amount of$97,500. The anticipated cost for rehab is $20,000. Without GAP Funding the purchase price could be no higher than $77,500 in order to get 100% Financing. But say the seller was only willing to negotiate down to$100,000. There’s a “GAP” of $20,000 that you need to come up with for the rehab costs.
After-Repair-Value: $150,000
65% ARV: $97,500
Rehab Costs: $20,000
Avalonri.com will lend: $97,500
GAP Funding will lend: $22,500
Approximate Gross Profit: $30,000
Approximate Net Profit after split with the Gap Funder: $15,000
3. A Business Line of Credit
The reason the business line of credit is such a good option is because it addresses the downside to the two other options for 100% financing. The draw back to just finding a really good deal is that you still have to come to the deal with Earnest money, and closing costs and any other ancillary expenses. With Gap Funding you might get most of your upfront expenses covered, but you end up having to split the profits which can be costly. So lets see what the numbers look like with a Business Line of Credit.
You find a home with an After-Repair-Value: $150,000, We loan up to 65% of the ARV, so it would be an amount of $97,500. The anticipated cost for rehab is $20,000. Based on these numbers the purchase price could be no higher than $77,500 in order to get 100% Financing without a business line of credit. If you had a business line of credit for $20,000 you’d have the flexibility to pick up the property for close to an additional $15,000 which still leaves you with plenty of room for making a solid profit. At a minimum you can use the business line of credit to cover all other costs outside of the purchase price and rehab costs that Avalon is covering.
65% ARV: $97,500
Rehab Costs: $20,000
A Purchase Price No Higher Than: $77,500
Closing costs of approximately: $5,000
In the end you’re looking at a Net Profit of roughly $47,500 (after closing costs) and the big upside is that you didn’t have any upfront costs to secure the deal (earnest money) or additional expenses at closing.
Taking advantage of all three of these 100% Financing Strategies......
