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Rehab Loan Takeout into a DSCR Loan on a Fourplex in Desert Hot Springs, California
A fourplex in Desert Hot Springs, in Riverside County, was bought and fully renovated on a short-term rehab loan with construction draws. Once the units were leased, the rehab loan had to be paid off before its term ran out. Blue Fox Capital Corporation arranged a $382,500 30-year DSCR loan, closed in the owner’s LLC, that paid off the rehab lender. The borrowing LLC is owned by Blue Fox’s principal, so this was our own file, run through the same wholesale channel we use for clients.
The situation
The rehab loan had funded the purchase and the renovation in draws, each released after an inspection. Loans like that carry a termination fee and a hard maturity, so the exit has to be lined up before the work is finished. By the time the fourth unit was leased the property appraised well above cost, the owner’s credit score was 750, and the goal was a permanent loan qualified on the rents rather than on anyone’s tax returns.
What the file needed
- Current leases on all four units and a landlord insurance policy with the lender’s loss payee, with five months of premium impounded at closing.
- An appraisal ordered through the lender’s appraisal management company. The broker cannot order it directly, and getting it assigned was the slowest step in the file.
- A payoff demand from the rehab lender, revised twice and finally rushed.
- Title work that matched the final loan amount: an updated prelim and supplement, a premium adjustment, an updated tax certificate, and a closing protection letter effective through the funding date.
- Confirmation that the two title endorsements the lender requires on a multifamily loan would appear on the final policy, and clearance of an assignment of the rehab loan that had been recorded against the property.
- Proof of the most recent payment on the rehab loan, requested by the underwriter during desk review.
- LLC documents, a resolution naming the authorized signer, a servicing agreement, a borrower signature authorization and original signed loan documents returned to escrow.
How it was packaged
Blue Fox submitted the file with the leases, the recent appraisal from the rehab lender’s draw process and the entity documents, and had a conditional approval back in six days. The conditions were worked in the lender’s portal while escrow chased the payoff demand and title chased the endorsements. Two items took real pushing: the appraisal assignment and the recorded assignment on title, which was cleared with the payoff. Documents were signed in counterpart, originals went back to escrow overnight, and the lender cleared funding the next morning.
The outcome
The $382,500 loan funded and recorded the same day the originals arrived, about seven and a half weeks after the application. The rehab loan was paid off before its termination fee applied, and the fourplex now sits on a 30-year loan with no balloon, held in the LLC.
Similar scenario?
If you have a rehab or construction loan coming due on a leased property and want a long-term loan qualified on the rents, send us the address, the current loan balance and payoff date, and the rent roll. We will tell you which takeout programs may fit and what the file will need. Start on our California construction takeout loans page or contact us.
Send us your scenario
Tell us about the property, the loan and your timeline and a loan advisor will follow up. Term sheets are subject to review and lender approval and are not a commitment to lend.
This case study describes a completed transaction in which the borrowing entity is owned by Blue Fox Capital Corporation’s principal. Past results do not guarantee future results. Each transaction depends on the property, the borrower and lender approval. Blue Fox Capital Corporation arranges and places financing for real estate investors, commercial property owners and California homeowners. Blue Fox Capital Corporation is a licensed California mortgage broker (DRE 01527288, NMLS 1840487). On select correspondent loan programs it is the direct lender named on the loan documents. We confirm the role for your loan before anything is submitted. Daniel Eckhouse, NMLS 217328 | CA DRE 01977403. This page is general information, not an offer, a rate quote, a loan approval or advice for your situation. Programs, terms and availability vary by property, borrower and lender and are subject to qualification and lender approval. Not all applicants will qualify. The business-purpose loans discussed are not available for a home you live in or plan to live in. Equal Housing Opportunity. 66350 Pierson Blvd, Suite A, Desert Hot Springs, CA 92240 | (310) 756-3619 | dan@bluefoxcapital.com