Many of the real estate investors I work with on a daily basis are beginning to see the fruits of their labor. Those who wisely decided to buy and hold, either through a traditional “landlord” or through long-term lease options, are making substantial monthly income from their hard work.
With good times, questions come. What about the investors who used more expensive private money or hard money to acquire these properties? You know, the money that cost them between 10% and 18% with interest only. The amazing thing is that these properties were purchased at such a discount that cash is still flowing very well at this high rate. However, what sucks is that they are apparently stranded on this island out of nowhere. This island that never sees them pay the debt and the balloon looms. Thanks to the “good guys” Mr. Dodd and Mr. Frank, investors cannot roll over these packages in the same way that they have in the past. After searching, they were able to find longer-term hard money or some “institutions” that would offer them a 9.99% rate and high points to refinance. This didn’t really do much good though, as the term was still too short and the fee was actually just not worth it.
In January 2012, a new private program was launched to help investors refinance these packages and get the loan at the rate and term they were looking for. To give you an idea of how the process worked, let’s look at this example:
“Joe” is an investor in Phoenix, AZ. For the past 4 years, Joe was able to get some bargain gems in the valley of the sun. He located and started using an investor that charged 18% but required no down payment and was easy to use. Since Joe’s cash flow on these properties was so good (because he was picking up the houses for 30-40 cents on the dollar), he was covering the payments with ease and making a great return while accumulating over 100 properties in his portfolio. Joe, he didn’t really have a time frame to pay the funds back (as a lender at that rate, they weren’t in a rush to get the money back), but he knew he was leaving money on the table. He searched for more than 10 months before he found out about the new show. Joe was able to refinance all of his properties into one loan package (although he actually divided them into 3 packages), received a 6.5% rate, 25 year payback, with one call in 10 years, and was able to do the whole deal without pocket money and providing only BPO values for properties. Joe’s cash flow skyrocketed.
Joe is not the only one who needs this program. Most investors who have bought properties with hard money in the last 3 years should be breaking down the doors to obtain this type of financing. What makes this really attractive is that investors can now use the hard money to purchase properties, restructure securities, make them pay debt service, and slip them into buy-and-hold packages. Even the most creative investors are placing end-buyers in long-term rental tenant properties. It still works within the loan and removes all maintenance (but that’s another item altogether).