Page 18 - Sonoma County Gazette - August 2018

Wanna buy a FIXER UPPER?
Well, do ya? It is a good question and a lot of people who think they want to buy a fixer end up not doing so and others who stumble onto a fixer end up taking it on and loving it. It will be a lot of work, period. It could also end up being one of the best things you ever did. I feel like it is my job as a mortgage advisor to help people ask themselves the proper questions so they can determine if this is the right thing for them.
Most people don’t get to work with The Property Brothers on HGTV, we have to do this on our own in the real world. Even on TV you see that people get very heavily involved even if they are not swinging a hammer themselves. First you need to determine if you are buying a property to live in or one
to fix and flip. These are 2 very distinct type of transactions. Both types of transactions require a contractor bid and we will need to vet the contractor as well as the buyer.
If you want to buy a fixer that you intend to live in, we have some great loan programs and the easiest one to work with is the FHA 203k Rehabilitation loan program. Let’s say that you are looking at a house for $275,000 with $125,000 worth of work to do. We will lend you 96.5% of the purchase price AND 96.5% of the rehab costs as well. YES we will lend you $386,000 of the total $400,000 project. When your project is complete, your home will likely be worth more than the 400k you have into the project. This will be your part time job until construction is complete.
We have another program here that is just for investors and we call it our
fix and flip program. If you plan to utilize this type of program, you will need more money down and every project is different. You may need as much as $100,000 of your own funds on a $400,000 project We will look at market value before and after the work has been done and we will look at the scope of work BEFORE we determine how much we will lend on the purchase and how much we will lend on the fix up costs. We will do this even for someone just starting out but we have special programs that act much like a line of credit for well established contractors and investors who do this all the time.
There is a third way to do this and that is the use of private money. Either you use your own funds and you replenish them when you sell the property or you borrow from a private or “Hard Money” source which typically requires that you have a decent amount of cash invested and the rates of interest will be much higher than the first 2 options (may 200k needed on a 400k project). The nice part about this loan is that they just need a quick look to make sure that the entire project makes sense and then they lend you the money and leave you alone. To get the better rates, you need to jump through a few hoops.
Need to know more? Please send me your real estate and mortgage related questions. I am happy to answer you and it may become the topic of a future article.
Hans Bruhner (NMLS 243484) is a Mortgage Advisor for Pinnacle Capital Mortgage (NMLS 1071). Both are licensed by the Department of Business Oversight under the CRMLA. If you have a question, please contact Hans at (707) 347-9250 or hans@hansblog.com
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