hard money loans worth it?

Question

greetings BP community,

My name is Josh. I've spent months of research into REI and was interested in making my first investment in a rental property. I want start of with single family homes  but I barely have money to put a decent down payment. When i looked into hard money loans, I crunched numbers based on probable expenses and intrest rates with the cost of an average home in todays market (depending on location) but it doesnt seem like there is no, if any ROI using a hard money loan. Should i just save for a down payment or is a hard money loan worth the risk? do you think im just not finding the right properties?

Nicholas L. · Answer

@Joshua Pages

do not use HM on first deal

save up down payment and house hack

look into programs with low down payments

Travis Timmons · Answer

I'll second @Nathan Gesner - hard money is a short term debt instrument for an experienced investor. Taking on high interest debt is not the solution to not having money to fund real estate deals.

Dan Beaulieu · Answer

Hi there. I'm a HML and rehabber in Tennessee so I figured I'd Chime in. There have been some pretty solid responses here so far but I'll add my two cents.

We really need to set the expectations here...It's easy to get caught up in the hype of real estate investing when you're starting out. The real truth is, you'll want to have some capital. Inadequate cash reserves are the #1 reason flippers and brrrr investors fail.

We lend to brand new investors like yourself all the time. They have to have cash reserves, and a great deal. If they have those 2 things, you're very likely to be successful.

If you came across a 70% of ARV deal that had to close in 1 week, and there was going to be 75K in equity, would you rather pay about $10,000 in interest to a hard money lender, or would you pass on the deal because that seems too "dangerous." You see, it's a very useful tool that has it's place in real estate investing. But you have to have a good deal, and some cash reserves.

Your first real estate deal should indeed be a house hack. Save up 20K to have a small down payment and a little bit in reserves.

Then, after you've accomplished that, Increase your income, save, and eventually you'll be able to work with a HML on good deals in a fruitful partnership

Nathan Gesner · Answer

Hard money loans should be used for quick turn-arounds. You want to pay them off quickly so you don't carry that high interest rate.

The most rewarding things in life are hard. Increase your income, cut spending, and save up. That's the true path to lasting wealth. Shortcuts just get you into trouble.

Taylor Dasch · Answer

I agree that HMLS will need a quick turn around, but I would also speak to quite a few of them. Some wont require any money in the deal provided that it is a good deal and you have your plan laid out well.

Eliott Elias · Answer

There is no ROI if the deal is not cheap enough. Hard money is the only way you will be able to fund flips (assuming the condition does not qualify for conventional) A good deal will make money after all hard money costs.

Paul De Luca · Answer

Hard money usually requires 10-15% down so if money is tight you'd be better off house hacking to put 3.5-5% down.

hard money loans worth it?

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