How to Get 100% Financing
According to the small business administration, the #1 reason for business failure is lack of capital. When you start flipping homes, you’re essentially starting a business. If you’re just getting started in real estate investing, most of the time you won’t have a lot of excess capital to use. This is where we come in. We provide financial options not only with funding, but ways to achieve 100% financing with your rehab deals. If you don’t have a lot of capital to bring to the table, there are ways around it by qualifying for 100% financing.
Now, 100% financing doesn’t mean 100% free. As with any real estate deal, there will be some costs that will not be included in 100% financing. However, 100% financing opens the doors for many more possible deals because you won’t have to sink all of your capital into one or two deals. 100% financing qualifies you for a loan for up to 70% of the ARV (after repair value) of a property. Depending on your membership level with us or the products you’ve purchased, you may or may not have access to 100% financing, but we’re here to help you achieve it. We want you to enjoy the endless opportunities and advantages it has to offer.
Listed below are 8 Ways you can take advantage of 100% financing.
Need Money for Your Deal?
Listed below are 8 Ways you can take advantage of 100% financing.
Find a REALLY Good Deal
If you find a deal that is ridiculously profitable, hard money lenders will be salivating over the chance to fund your deal. The better the profit on your deal, the more likely your deal will qualify for 100% financing. We lend up to 70% of the ARV. Now, it’s important to bear in mind what we disclosed previously: 100% financing does not mean 100% of the ARV, but the full sum of 70% of the ARV. Funding through our hard money loans can be done in 13 states: Georgia, Illinois, Indiana, Virginia, Washington, Maryland, North Carolina, Michigan, Wisconsin, New Jersey, Ohio, Texas and Louisiana. Other lenders lend in different states depending on lending laws specific to that state and foreclosure time frames.
When determining whether or not a deal will qualify for 100% financing, you need to look at three expenses which are added together and included in the 70% to see how much money we can lend to you:
If you add these expenses together and the grand total is 70% or less of the property’s ARV, the likelihood of 100% financing is great. Here is an example:
Purchase price: $90,000
Repair costs: $25,000
Cost of loan: $16,000 (based on 5.5 points and 15% interest)
70% of the ARV is $147,000. When you add the purchase, repairs and fees, the total is $131,000. Since we’ll lend up to $147k, this deal has great potential to qualifying for 100% financing.
Gap Financing and Hard money
Any sum of money outside of the 70% will need to be presented as a down payment or contribution from the borrower. If you don’t have this amount, or if there’s a difference between what hard money lenders will lend you and what you need to close the deal, gap financing can cover the difference. To cover the difference, we offer our clients a business line of credit to act as gap financing, so that you can qualify for $0 cash-to-close. You can also take advantage of our Partner-with-a-Pro, which will allow you to partner with a investment professional to cover gap financing. Typically, gap financing will require a profit split from 25% to 50% (typically 50%, especially if you’re new to real estate investing).
Here are some good tips:
The better your credit, the less money you will need in gap financing.
The more experience you have in real estate investing, the less money you will need in gap financing.
The more of your own money you put down, the less money gap financing will take from the deal.
Gap financing is available in all states. However, in some states, the borrower is required to come up with some capital. This can be acquired through Method 3 – an unsecured business line of credit.
An Unsecured Business Line of Credit and Hard Money
This is a funding strategy that works in all states. In this case, you receive a line of credit from the bank to fund your business (or real estate investment) expenses. This type of loan has unsecured ties, meaning it won’t go against a car or other collateral. For a line of credit, you pay an origination fee once every 5 years, and in some cases, there is no origination fee. You can also use the funds for anything at any time, whether you need funds for repairs, marketing or closing costs.
|Advantages of Unsecured |
Business Lines of Credit
|Disadvantages of Unsecured|
Business Lines of Credit
|In the final hour, it could mean the difference between getting a deal closed and not getting a deal closed.||Good credit is a prerequisite for approval. If you don’t have good credit, partnering with someone with good credit is a solid option.|
|You can act as your own gap financer.||It can take a month or two to qualify for it.|
|It can cover any additional/unexpected expenses and acts as a good backup resource.|
|You don’t have to split the profits with anyone, as you would with a gap financer.|
All of the Above: An Unsecured Business Line of Credit, Gap Financing and a Hard Money Loan
Now, suppose you run into the following situation:
The hard money lender can only lend so much. You have an unsecured business line of credit set up, but you weren’t able to get enough. In a situation like this, you would use a gap financer to come up with the difference. Or, if you weren’t able to get enough gap financing, you could use your unsecured business line of credit to come up with the difference. This is not the best situation, but if it means the difference between getting a deal closed or not, it’s worth it to take advantage of this option. This situation could also apply to someone with poor credit or someone just getting started building their unsecured line of credit.
An Unsecured Business Line of Credit
Believe it or not, this could serve as a 100% financing option all by itself. Customers with excellent credit can get up to $100-$250k in their unsecured business line of credit. With this funding available, you can purchase the property without opting for a hard money loan or gap financing. However, the majority of individuals have average credit, therefore this option would only apply to the minority who qualify. Regardless of whether you use it solely for funding or as a backup source, make sure you apply as soon as possible for an unsecured business line of credit. This resource will help ensure your investment success.
Unsecured Business Line of Credit and Gap Financing When to use gap financing vs. when to use an unsecured business line of credit:
Since an unsecured business line of credit can take time to obtain (a month or two), you should start the process now. In contrast, gap financing doesn’t take any time at all to set up – just a few days for approval. However, each deal is unique and there is some risk involved: though each deal gets looked at, not every deal will get picked up by the gap financer.
We suggest getting your unsecured business line of credit set up right away and using gap financing as a last resort: you never know which deals the gap financiers will or won’t pick up. If you need assistance opening an unsecured business line of credit or have any questions about the process, we are here to help. You can give us a call at 801-948-9774.
Seller Carryback and Hard Money
A seller carryback is where the seller agrees to being paid the majority of the property’s purchase price immediately, and the rest once the house is sold to the end buyer. For example, if a property costs $100,000, a seller carryback happens if they agree to you paying them $80,000 right away and $20,000 later. *Note: In some states, a seller carryback is not allowed. Make sure you research which states would allow a seller carryback situation. It would be similar to using a gap financer, only you wouldn’t have to split profits. In many cases, you can find a seller willing to do this with no extra money and no interest. Though this is a MUCH better option than using a gap financer, the seller would have to wait for their money, which could be a major drawback for some sellers.
All of the Above Strategies with a Business Partner
A real business partner can save you just as much as an unsecured business line of credit. A business partner brings something to the partnership that you don’t have, be it money, credit, or both. Here are some major advantages to having a business partner:
Partnering with a professional allows you to create your business with an ownership structure.
A business partner can be used as a gap financer.
If you have bad credit, a business partner can get unsecured business lines of credit for you, or even a primary loan.
There are lots of people with good credit and money who don’t have time to make deals happen, but would like to leverage their credit and/or money to make more money. These are the essential business partners your fix and flip business would need. They have the funds – you have the time. Just make sure it’s a REAL partnership, with each side contributing what the other side lacks.
Of the 8 Methods you can use to achieve 100% financing, you can decide which strategy is best for you. If you need any help, have any questions, or would like to know more options regarding 100% financing, feel free to reach out to us. We can get you started with the perfect program for you, giving you the tools best catered to your success.