I never used a co-signer. I personally guaranteed all the loans, and having decent credit and some cash reserves (to pay downpayments, etc) will be required.

I literally started walking into very small, local banks and asking to speak with their commercial lending department. I’d sit down with their rep, explain that I was looking to get into rehabbing and was looking for financing. Most would quickly explain that this wasn’t something they did anymore (this was 2008), but were nice about kicking me out…

But, one or two said that they would consider this type of financing under the right circumstances and wanted to talk further. Ultimately, it boiled down to them wanting to look at the specific deal, at my credit, and at my ability to put at least some of the money down. There was one bank that seemed more willing to lend than the others, so I kept in touch with the loan officer from that bank, and when I needed funding I called him and he walked me through the process.

The bank ended up getting shut down by the FDIC a year later (it went out of business), but by that time I had a bit of experience and could start approaching some other banks that only considered lending to more experienced investors. Unfortunately, even these banks are few and far between these days, and the main bank that does this kind of lending in my area is now requiring large down payments, reserves, etc. It’s only worth considering on very specific deals for me…

Love the blog, it’s very informative. Even though you mention that the terms of your loans have been getting progressively worse, it still sounds like you have a pretty good financing situation.

A couple questions for you: First, how did you find & secure this financing in the first place? I know you mentioned you went to smaller banks, armed with your business plan. Was it as simple as that, even without a proven track record of success?

Second, what are your feelings about the 12-month loans? They sound rather risky. Have you always been able to repay or refinance by the end of the term?

Thanks!

Great info, seems like the same around my area in Dallas, TX. There are a few decent local banks that I work with but private money seems to be the best way to go these days. I have a few prospects through family and friends that I am approaching and it seems as if they are interested. I am starting out slow just to show them that it works to get up to 12% on their money Hopefully if they see it work once, they’ll be more willing to do it again.

Keep up the good work and let us know when the new baby arrives.. Best of luck for 2011 for you..

The terms of my loans have been getting worse and worse over the past two years as a couple of the banks doing these rehab loans in my area have gone out of business, and the one left has had some bad experiences (with another big investor last year). So, my bank keeps getting more and more strict on how much they’ll lend against each property.

It used to be that they’d lend 80% of the purchase plus rehab costs (which was great), and now they’ll only lend against 80% of the purchase price. I have to pay the other 20% myself, plus all the rehab costs myself. They don’t verify funds, but I fill out a personal income statement (balance sheet) once a year.

The terms of the loan are decent: 6.75% interest only for 12 months.

They also do longer term loans against my rental properties…generally 3-5 years with rates around 7-8%…

Your blog is truly a great inspiration for others to start investing in real estate. Just a quick question, what terms are you getting for the purchase loans? Are they shorter terms like a HML would do and you are expected to refinance out of it within a year? Also what kind of proof of funds do they look for to ensure that you would be able to finance the repairs and pay them back?

//Stefan

That is an excellent idea, thank you so much for your reccomendation

John

First, I’m not an attorney or a CPA, so take this for what it’s worth…

If you have multiple investors who will be covering the entire purchase price, I would recommend forming a business entity (most likely an LLC) with each of the investors as members/shareholders holding an amount of stock proportional to their investment. Then have that business entity hold a mortgage on the property.

This way, if you default on the note, the business entity takes ownership of the property (they foreclose on it), and the investors will then have the property in return for their investment.