Have questions about hard money lenders and repayment schedule

6 Replies

Hi, I live in Nashville and I'm looking to buy my first rental deal and use it as a BRRRR. Wondering how to get money and then pay it back. Does HML want to be paid back on a monthly payment or can I just pay them back everything after I get a mortgage a year later? purchase price is 70,000 for house with tenant already there. AVR after a year should be close to 100,000.

What’s the plan for increasing the value $30k in a year with the tenant already in place?

would have to take a look inside first, but mostly cosmetic and updates. Landscape and pressure wash house. Nashville property values are predicted to rise 9% a year. Also rent is rising. Houses in that area are estimated at 80,000 - 90,000 now.

Originally posted by @Shawn McCarney :

Hi, I live in Nashville and I'm looking to buy my first rental deal and use it as a BRRRR. Wondering how to get money and then pay it back. Does HML want to be paid back on a monthly payment or can I just pay them back everything after I get a mortgage a year later? purchase price is 70,000 for house with tenant already there. AVR after a year should be close to 100,000.

Most hard money loans are interest only payments, then at the end you pay the full balance. This may be different from time to time but usually it is interest only payments.

Originally posted by @Shawn McCarney :

would have to take a look inside first, but mostly cosmetic and updates. Landscape and pressure wash house. Nashville property values are predicted to rise 9% a year. Also rent is rising. Houses in that area are estimated at 80,000 - 90,000 now.

The reason I asked is because it'd be difficult to do any significant upgrades to a house with a tenant already occupying it. Normally the way BRRRR works is Buy, Rehab, Rent, Refinance, Repeat (notice the Rehab comes before Rent).

So with a tenant already occupying the house in your deal, you'll be limited to minor upgrades, which is sounds like is all you're planning (i.e. cosmetic, landscape, pressure washing, etc). The problem with that is, what if you buy with a hard money loan and can't raise the value enough through these minor upgrades to refinance out of it in a year when the hard money loan is due? Cosmetic updates, landscaping and pressure washing won't raise the value much, if at all. And rising rents won't raise the value on a single family house at all either.

So you just have to have a solid exit strategy (or two) and not count on the possible appreciation to get you out of this hard money loan.

Anyway, just some things to think about.  Good luck.

@Shawn McCarney All depends on the lender.

Some do monthly payments, some take a lump sum at closing. Depends on the lender and depends on what you negotiate. 

I have typically found that the lump payment at the end works best for me. Don't have to worry about making interest payments on top of all the other stuff you have going on during a project.