House #4: Loans & Partners

Because I decided to change my exit strategy on The Yellow Stain House, I realized that the typical loan program that I generally use won’t suffice for this project. The rehab loans that I typically get are 12-month loans that — while sufficient for a rehab and resale of a property — are insufficient if I plan to hold the property for more than a year. I’m not positive I’ll hold this house for more than a year, but that’s a definite possibility, so that left me with two options: purchase the property for cash or get a conventional loan.

The cash option isn’t very appealing, as I don’t like the idea of tying up a large amount of cash for what could be a long time, especially if I decide to hold and rent. And the problem with going the traditional loan route is that I need a co-signer to qualify (the down-side of not having a traditional job). I have a good friend who has co-signed with me before on The Bulge House — and would love to again — but that wouldn’t work in this case; the closing is next week, and he’ll be out of the country for five of the next seven days.

So, with my options limited, I decided to try to find another partner on this one.

There is another investor who one of my real estate agents introduced me to a couple months ago who I’ve started to become friends with; we meet for dinner a couple times a month and discuss the local RE market and investment strategies. He’s done several successful deals, and we’ve considered partnering in the past, but the right opportunity hadn’t arisen. Knowing he had another rental nearby The Yellow Stain House, and knowing that he was getting ready to close on the sale of his most recent flip, I thought he might be interested in working together on this project. I gave him a call, he immediately met me at The Yellow Stain House to do a walk-through and discuss strategy, and by the next morning was ready to move forward as a 50/50 partner.

The tricky part of this deal is that we need to close early next week, leaving us exactly seven days to qualify for a traditional loan, get the appraisal, deal with title issues, go through underwriting and get the loan funded. I’ve never heard of that happening in less than two weeks, especially in today’s credit market. Luckily, my brother has spent much of the past seven years managing my family’s mortgage company, and is well connected and very knowledgeable about the industry. Within minutes, he had my partner’s and my information in the hands of the loan processor, and was on the way to getting an approval through a lender. He spent much of the past two days on the phone dealing with the loan processing and other loan-related issues, and if things go smoothly over the next couple days, we may actually get through the conventional loan process in less than a week.

My wife and I are keeping my fingers crossed…we’d love to get this one closed on-schedule and figure out which way to go with it…