Hard money refinance

4 Replies

Can I use a hard loan for a buy and hold rental property? Would I be able to refinance it with a conventional loan pay the lender back then rent it out? How would I go about doing that?

@John Garza the key for most hard money lenders making hard money loans is the property and the exit strategy. If your exit strategy is to rent and refinance the property you would need to establish the ability for you to get pre-approved with a conventional lender in order to accomplish this (the exit strategy). So to start I would suggest you find local banks or lenders and talk with them about refinancing rental property and especially focus on seasoning requirements. Seasoning refers to the length of time you have owned the property. For example some banks may require 6 months of seasoning in order to refinance using any new valuation on the property. 

Most hard money loans are short term (6 - 12 months) so your exit strategy needs to be solid before you go to the hard money lender.  Yes there are many hmls who do these types of loans.

Good luck!

  

I do this on a regular basis.  A few important things to know, however.  CAN you get approval from a lender to refinance?  If your credit score or other issues will be a tough obstacle, this can be a dangerous trap.  You may not know 100% for sure ahead of time, but you should have a degree of comfort.  Otherwise, your hard money may get REALLY hard and you may lose the property.

Another thing to know is how long the hard money lender will give you to take him out. If it is 6-12 months, this can be very challenging. I recommend having at least 18 months on the HML to refi, a little more is better. Also try to negotiate no prepayment penalty or at least no pre-payment penalty after 6 months or so.

I use this structure when buying distressed property at a heavy discount.  I fix the problems, which in turn raises the value.  This makes it easier to refi the original loan amount with a more traditional and softer lender with more favorable terms for a long term hold.

In nearly every case, the property will need to be rented and cash flowing prior to the 2nd lender committing to refi, so you will want to include that in your stabilization plan.

If you plan to buy a property at or near full price, this is an expensive option and I would not recommend it.  I think it works best when buying "unfinance-able" properties at a heavy discount.

Not sure if I answered all of your question or not.

Originally posted by @Adam Johnson :

I do this on a regular basis.  A few important things to know, however.  CAN you get approval from a lender to refinance?  If your credit score or other issues will be a tough obstacle, this can be a dangerous trap.  You may not know 100% for sure ahead of time, but you should have a degree of comfort.  Otherwise, your hard money may get REALLY hard and you may lose the property.

Do you get an appraisal or BPO before buying the property with hard money? 

I'm just thinking about a situation where the lender that will refinance the property will appraise it lower than what you expect. 

@Assaf Furman - I don't have a BPO or appraisal done, but I should qualify that by saying that I am a broker and I am comfortable with my opinions of value.  I will go on to say that I always build in a decent cushion in case I am wrong on my opinion of value for the end financing, which I have been wrong about in a couple cases.

I am very particular about what I buy and don't shoot for high volumes of deals.  I try to make every deal count.  I will pass over 10 mediocre deals to wait for the "can't lose" deal.

It is not a bad idea to get a professional opinion of value ahead of time (BPO or appraisal) because it is dangerous to get trapped by your deal if you use this approach, unless you have extra funds to kick in to close on the refi in the event that the bank's appraisal comes in low.  Used correctly it can work very well.  Used as a way to "worry about it later" and you can waste time/money/energy trying to save it later.

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