BiggerPockets

I am just getting in REI and I am thinking about buying a rental house from a wholesaler. People tell me to get a loan from a hard money lender for quick money. Now if i got that loan would i try to refinance with a bank after the closing to get a lower interest rate or would I continue to pay off the loan to the hard money lender.

If you have time to go through the process with a bank, you have good credit, and the home doesn't need real extensive rehab I would say go straight to the bank. No sense in having the additional refi expenses if your upfront startegy is to hold onto the property.

If you need to barrow the fix up money, or the home is such a dog that a bank will run screeming, or you need to close real fast on the home and don't have 30-45 days to go through the bank or conventional lender process then go to the Hard Money lender.

Just expext that the hard money lender will probably charge 12-18% interest and 4-8 points. If you're a new investor and don't have much money to put up then expect to be at the higher end of those ranges.

These are very loose recommendation. The final choice will come down to your exit strategy, the equity spread in the deal, and other business considerations that vary with every single deal.

My first recommendation would be to go to talk to a couple banks and a couple HM lenders. You might find the choice is made fore you.

I agree buying with an ordinary loan is going to be cheaper than doing the hard money/refi route. However, it can require a lot less cash of pocket. You're going pay at least 20%, and probably 25-30% down on an investment loan. Then, you have to fund the rehab yourself.

Great points Ryan, I agree. Finding these local banks and developing a relationship with them is no easy task, but then again, if it was, everyone would have one.

Credit unions are another great option.

If you do decide to go the HM route (and I agree that a traditional bank/loan should be sought out first)

Be sure - and I mean extra sure you can get a refi - and not just some pre-approval letter - make sure someone looks at your actual bank statements / pay stubs / tax returns etc....all of it.

Also - I would pay for at least a desktop appraisal and I would study the comps (or have the appraiser chat with you about it) and see what kind of volume is happening in this area.

While I have never had a HML for more then 60 days if your going to keep that cash for longer you need to be sure the comps will be there to support it - if your looking 6 months out understand your taking a risk - what if there are no comps? What will time adjustments do (what will HVCC do!).

But you want to be 100% sure:

- You can get refied out of the HML
- Comps will be there

Prob. is you can't be 100% sure so just understand the risk your taking upfront.