On Wednesday of last week Chris Clothier put out an email about a new program we are offering that will give investors the
opportunity to purchase investment property in Memphis with less money out of pocket than other purchasing strategies. Almost immediately, my inbox was flooded with inquiries from clients, competition, and even other lenders wanting details on this program.
I thought this would be the easiest medium to answer all of your questions. First, let me hit the highlights of the program for buying property in Memphis. Although these were clearly stated in Chris’s email, let me clear up any confusion:
- This program is ONLY available for investors purchasing properties from Memphis Invest. The lender has insisted on exclusivity because we have a longstanding relationship and because of the amount of trust and faith they have in our company and business model.
- This program will only work on properties #1-4 (including your primary occupant household), meaning if you already have 4 mortgages and you hope to buy a 5th property , you will have to do so using another strategy.
- The minimum loan amount for the program is $50k, so your purchase price + repairs on the property must be > $67,000.
- The transactional costs are very low for this type of purchase. There is a $995 origination fee plus ½ point per 30 days until you refinance. You will still have refinance closing costs on the back end.
- The refinance loan will be at 75% of the ARV.
Now, if you’re still with me and you think this type of purchase strategy will work for you, then let me walk you through it.
- You find the property at 123 Main Street on the Memphis Invest site and see that it is $65,000 and the repairs are $10,000. You see that the after repair value of the home will be $100,000.
- You get pre-qualified with the lender and send in your signed contract for the house, along with a check for half of the repairs on the property as earnest money. The lender will fund purchase + half of the repair amount in the short-term loan.
- The lender orders the appraisal up front. This is convenient for the investor because you will know exactly how much money you will need to bring to the refinance closing up front, avoiding any surprises.
- The short-term lender then closes and funds the house for you. The deed will be recorded in your name and you will need to get insurance on the property just as if you owned it for cash. You will close with Sharon K. Anderson, our closing attorney here in Memphis, either in person or via FedEx.
- The short-term lender will disperse half of the rehab amount to Memphis Invest for repairs. We will already have the other half from you.
- Once the repairs are done, the appraiser will come back to the house to make sure the repairs are done and will sign off on his original appraisal. The file will go into final underwriting and the lender will refinance the loan.
- Since in this case purchase + repairs = $75,000, with roughly another $2,000 for the transactional funding and another $5,000 in refinance closing costs, and you’re now at $82,000 on a house that has been appraised at $100,000. Since the lender will refinance at 75% of $100,000, you have just bought a Memphis Invest property and only used $7,000 of your own cash. In this example, that is almost 1/3 of the cash you would have put down on a 20% down conventional purchase.
Some ideas on this subject that I think are important to point out:
Þ I think it is great to have the refinance lender refinancing their own short-term loan. They have to refinance the house in order to get their money back, and it is in their best interest to do so as quickly as possible in order to do more loans.
Þ Some of our properties will be better suited for another purchase strategy. Several of our properties will have the investor bringing less cash to closing using 20% down rather than this program because ARV’s are deflated in some areas.
Þ On average, you can expect to bring about $10,000 to closing on all of our properties using this program. We had 3 properties that had investors bringing less than $5,000 when Chris’s email went out on Wednesday. By Friday they were all gone. The average amount that an investor brings to the table on a 20% down purchase today, including closing costs, is $18-21,000. Bringing an average of $10,000 to the table makes it easy to see why we think this program is such a home run.
If you’re ready to make a move (and why would you not be at this point?), then check out the available investment properties in Memphis and call me as soon as you have found a few properties that you like. I’ll help you run some numbers and we’ll pick you out 2 or 3. We’re encouraging everyone to buy in bulk, because as I’ve covered in previous blog entries, your safety is in numbers in this business.
Contact Marq Cobb or David Meeks at 901-751-7191 today to get started!