Get an overview of Rehab Financial Group’s 100% Financing Program for fix and flip projects in 30+ states. Private Lender Link’s CEO, Rocky Butani visited the company’s office in January 2023 to interview the company’s President, John Santilli. Watch the video or read the transcript below.
ROCKY BUTANI:
For your fix and flip program, could you just give us a broad overview of how it works and what some of the numbers look like?
JOHN SANTILLI:
Sure. We lend 100% of the purchase, 100% of the rehab, up to 70% of the after repair value. The way that we focus on that is, hey, you qualify for that, there’s a couple of different things. First of all, we do not require experience. If you have zero experience or zero to three experience, we will limit your ARV (after-repair value) up to 65%. If you have experience, then you qualify for the 70% ARV. There’s no down payment required on the property, so long as all of the numbers are less than the 70% ARV. If we wind up going above 70% ARV, you do have the option of bringing cash to the table, of course. So the only out-of-pocket cost, as long as the ARV works, is your closing cost, your third-party cost, and that’s it.
What do we look at? What do we require? well, we definitely look at your credit just like everybody else does. The only difference between us and some of the other lenders out there is that we will take the higher of 2 scores if you are a borrower/co-borrower combination (partnership). Income wise, we take a look at real income. We definitely require tax returns, W-2s, pay stubs, and we’ll take a look at the total income. We look at income and cash flow in the same regard. Mainly, what we’re looking at is that we know that every investor out there is trying to report zero on their taxes. That’s between you and the IRS. For us, what we want to validate is cash flow. So when we look at your bank statements, and we’re required to look at assets, how much liquidity do you have? We also look at the cash flow that you are showing as well. So it’s more looking at validation of your top line on your tax returns versus the bottom line.
ROCKY BUTANI:
So in terms of income, let’s say I’m a new real estate investor. This is my first venture. Are you looking at whether I have a full-time job that’s generating income? do you have scenarios where investors have other types of income that make them qualify?
JOHN SANTILLI:
The majority of our investors have second jobs or a primary job earning W-2 income. I would say to you, because we don’t require experience, that is a typical scenario. You’re getting a W-2 wage earner and we take a look at what their income is. We do take a look at your income compared to your outgoing expenses. And although we don’t have the hard and fast DTI’s (debt-to-income ratios) that the conventional lender may have, we will take a look at DTI and say, “can you afford this loan? does it make sense?”
ROCKY BUTANI:
So let’s say I don’t have a job, but I’m a real estate investor and I’ve got a bunch of rental properties that are making income. That obviously qualifies, right?
JOHN SANTILLI:
It’s a great question, and it’s a great question because I think that the initial conversations with our salespeople, sometimes the investor gets paralyzed by saying, “We take a look at your income and your cash flow situation.” and they say, “Well nobody asked me for taxes. Why are you asking me to see my taxes? I write off everything I possibly can.” and we understand that. At the end of the day, all we want to know is that you have the cash flow that you can support paying for our loan.
ROCKY BUTANI:
So that means I do have to make interest payments during the loan term, right?
JOHN SANTILLI:
That’s correct.
ROCKY BUTANI:
Okay. So you’re looking at the income of the borrower because you want to make sure that they have enough money to make those interest payments. But then you also mentioned liquidity. So what about cash reserves? How much money do you expect borrowers to have in order to qualify?
JOHN SANTILLI:
Sure. Let’s take a look at assets and we’ll look back at the income as well. Asset wise, what we’re going to make sure is that you effectively have your closing costs available. You have your reserves; we require 3 months worth of reserves paid at closing. And for ground up, we require 6 months reserves. So as long as you have all of your closing costs, third party and RFG (Rehab Financial Group) costs, you’re covered in that regard. We also require at least 10% to 15% of your rehab budget in reserves, cash in your bank account. Let’s say the rehab budget is $100,000. We’re requiring that you have $15,000 in cash aside from what’s required at closing.
ROCKY BUTANI:
And that doesn’t have to go into an escrow account? You just trust me that I’m going to have those Funds in my bank account?
JOHN SANTILLI:
We trust you that you’re going to have that money available. We will also look at other investment accounts that you have as well, but we’ll only take a certain percentage of what you may have in your 401K or IRA, stock accounts, and stuff like that.
ROCKY BUTANI:
So let’s go back to the other costs. Now, if, let’s say, the ARV requirements are met, i don’t have to bring any cash to make that work and you’re going to fund 100%. So specifically, how much money do I need to bring?
JOHN SANTILLI:
Everything’s based on the percentage of your loan. There’s the percentage points that you’re paying as a result of paying for fees associated with our loan. There’s some minor processing, underwriting type of costs associated with that. And then your third party costs; your title insurance, your inspection, appraisal fees, stuff like that. You have to cover those costs as well. Of course, any taxes that are due are associated with the loan as well.
ROCKY BUTANI:
You mentioned RFG (Rehab Financial Group) costs. Are you talking specifically about origination points?
JOHN SANTILLI:
Origination points, any of the fees associated with it. Your origination points with us, depending upon whether you’re a broker or investor, it ranges between 2 and 3 points.
ROCKY BUTANI:
So I have to have that cash up-front. There’s no down payment. I just need to bring in that 2% to 4% of the loan amount, which are origination points, at closing. So I have to have that money, and then all the other third party closing costs?
JOHN SANTILLI:
Correct.
ROCKY BUTANI:
Okay. And then I have to have the reserves on the rehab budget as well?
JOHN SANTILLI:
That’s correct. That’s really the power of our product. It is our opinion that if you can really find those properties that have the 70% ARV or less, that puts you in a really strong position for success. So the fact is is that along with the fact that we are checking all of those other variables, gives us the comfort that you’re going to be successful, we’re going to be successful together, and ultimately we don’t require any additional money at the closing table.
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