Bank Loans for Rental Property and Cash for Rehabs
Is it possible to start in real estate with zero money down?
Can you get additional cash to help cover your rehab costs?
Marcia Correll, a commercial lending expert who has been in the industry for over 30 years, answers these questions and more in this information packed interview.
Bank Loans for Rental Property
For some people, it’s a toss up on whether or not they want to rent out an investment property or flip it. A lot of times, for the real “do-it-yourselfers,” rehab and sweat equity is always in the equation. Buying a distressed property, putting blood, sweat, and tears into it can be very profitable. “I tend to look at rentals as a long term investment and a house that they’re going to flip as more of a short term investment,” says Marcia. Either way, the cash is available given the right scenario.
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Let’s illustrate the example given by Marcia. Let’s say you purchase a distressed property for $45,000, put 25% cash into the project, and make improvements. Perhaps the property is assessed for $100,000 and you feel you can get $110,000. “You can generally borrow up to a certain percentage of what that future value will be,” said Marcia. “They’re not just going to turn that cash over to you. You’ll make the improvements, you’ll bring the invoices into the bank, and the bank will pay the bills.” The important part is to have that 25% cash available.
What About “Zero Money Down Home Loans?”
This is a question that Marcia hears often. The “25% cash” principle is just not attractive to people who are just starting out and have little to no money to invest, but Marcia warns that the market is different now. “I think if I would’ve been asked that question 10 years ago, I might have answered it a little bit differently than I am now.” World economic crises, housing market failures, and stock market crashes have certainly changed the playing field, especially when it comes to regulatory agencies such as Fannie Mae and Freddie Mac.
“…look at the financial situation of your borrower and try to determine if that’s possible. Somehow in some way, shape, or form, we have to show [equity] … Sometimes, we can utilize equity that they have in other assets in order to get that down payment. It is possible, but then again it depends on what they’re personal balance sheet looks like and what we can utilize for that 25% cash down payment. I wouldn’t say yes, but I wouldn’t say no either.” – Marcia Correll
Your Team of Experts: The Importance of a Banker
Marcia, who is an executive at a community bank, knows the importance of having a strong team to support your real estate investing goals every step of the way. She firmly believes in “having the right people in your hip pocket to be successful.” Besides a banker, these key individuals are a real estate attorney, an insurance agent, and an accountant. Don’t go it alone!
Marcia addresses how to find a banker and stresses the importance of sharing your plan. “Generally, if you find a banker that you can work with, most of the time, the bank comes along with the banker. In terms of finding a good banker, I think asking your friends and family, asking someone in the business that you want to get into that has had success, ask them who their banker is,” says Marcia. An investor is going to be served differently than a regular homebuyer at a bank, so it’s important to lay that plan right on the table. “If someone’s buying a home for investment purposes, it’s truly considered a commercial loan. We don’t have a lot of the same types of disclosures,” continues Marcia.
We hope you enjoy this interview with Marcia Correll. The complete transcript is below!
Don't forget to check out our free rental property calculator. This will be a valuable tool in your arsenal as you analyze your existing or potential rental properties. Benefits: Thank you for your ongoing support. happy investing! Happy investing! – – – –
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Before you leave:
Disclaimer: The information presented does not consider your particular investment objectives or financial situation and does not make personalized recommendations. The information provided is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, AssetRover, Inc. recommends consultation with a qualified tax advisor, CPA, Financial Planner, or Investment Manager.
Don't forget to check out our free rental property calculator. This will be a valuable tool in your arsenal as you analyze your existing or potential rental properties.
Thank you for your ongoing support. happy investing!
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