Hard Money Loan on a House hack

New to Real Estate · Atlanta GA · Member since 2020 · 2 posts · 1 vote

I'm moving to LA in January to finish up school and start my acting career. I want to do a house hack to cut down on my expenses and avoid being a starving artist, but I have to start over with my work history after being out of work for a year and a half due to medical reasons.

I'd previously consigned myself to just paying rent for the next two years while I rebuild my income history, but then I thought what if I just use a hard money loan instead?

Would it be possible to use a hard money loan for a year or two on a house hack and then refinance once I have a more solid work history? I would be looking to do this on a fourplax. Are there limits on how much you can borrow on a hard money loan?

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Frank Hinck

Rental Property Investor · Minneapolis, MN · Member since 2020 · 540 posts · 285 votes

@Lee Ripma

Hard Money lenders will not lend on a House Hack, due to Dodd Frank any loan on an owner occupied property is a mortgage. Unless the HML also is a licensed mortgage originator, unlikely. Plus on an HML you still need to put down 20% plus construction costs. HMLs don't usually lend to first time flippers, or BRRRRs without major construction or real estate experience. Besides experience, the property / deal is largely what an HML will look at so it needs to be a smashing deal if you have no experience and little $ down.

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Tracy Cummins
Real Estate Agent · Charlotte, NC · Member since 2019 · 45 posts · 19 votes
6y
Hi @Dia Moore I think your house-hacking strategy will certainly help bridge the gap. Hard Money lenders are going to have pretty specific criteria and/or terms they will use for their loans. I would suggest writing a post or searching here on BP to find out if there are any Hard Money lender members here on BP who can give you a clearer idea on what that would look like for you in the LA area. I would also suggest doing some brainstorming on private money loan options you may have, wherein the terms may be friendlier especially if you're planning to carry the note for 1-2 years before refinancing. Do you have a network in LA that you could team up with?
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Jimmy LieuBusiness Member
Real Estate Agent · Columbus, OH · Member since 2019 · 3k+ posts · 2k+ votes
6y
I've never really heard of using HML for house hacking. I've only primarily heard of using HML for BRRRR properties. Also, HML carries way higher interest rates so it's something you want to use if you're doing a certain project where you can refinance ASAP.
I would love to hear what others think about this and if a HML can work with a house hack because I feel like it would cut into profit margins quite a lot. I feel like other options like seller financing or maybe local banks can be a better solution.
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Dia Moore
OP
New to Real Estate · Atlanta GA · Member since 2020 · 2 posts · 1 vote
6y
@Tracy Cummins, I'm working on getting a network in LA but it's a little difficult living in GA. I might just have to wait until I get there.
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Lee RipmaPro Member
Rental Property Investor · Prairie Village, KS · Member since 2015 · 2k+ posts · 2k+ votes
6y
@Dia Moore
In LA there are very strong tenants rights. You do not want to do anything with tenant occupied properies as a new investor starting out.
If you want to house hack consider house hacking a SFH and doing the rent by the room model. Maybe you'll meet someone you can team up with here who can get a loan. Run what it looks like to buy a SFH with even 8% interest renting out rooms and you'll be pretty convinced that you don't want to use a HML for anything you hold long term.
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Frank Hinck
Rental Property Investor · Minneapolis, MN · Member since 2020 · 540 posts · 285 votes
6y
@Lee Ripma
Hard Money lenders will not lend on a House Hack, due to Dodd Frank any loan on an owner occupied property is a mortgage. Unless the HML also is a licensed mortgage originator, unlikely. Plus on an HML you still need to put down 20% plus construction costs. HMLs don't usually lend to first time flippers, or BRRRRs without major construction or real estate experience. Besides experience, the property / deal is largely what an HML will look at so it needs to be a smashing deal if you have no experience and little $ down.
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Nicholas L.Pro Member
Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
6y
@Dia Moore congrats on your upcoming move. There's nothing wrong with renting in the short term - as you noted this will also allow you to really get to know one or more areas and better plan your house hack while you save up a down payment and reserves. Even if you found a hard money loan or a hard money-like loan willing to lend, you would pay points to close and a lot of interest - which might even be more expensive than just renting.
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Darius Ogloza
Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes
6y
The interest on a HM loan sufficient for you to buy in LA will significantly exceed the rent you will be asked to pay. For example, you will pay $3,540 in interest alone on a typical $500,000 HM loan. You will pay an additional $500 - $600 per month in property taxes and $50 per month in insurance. I am sure you can find a nice apartment for half the cost.
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Odie Ayaga
Specialist · Delran, NJ · Member since 2016 · 2k+ posts · 951 votes
6y
As @Frank Hinck said the simple answer is no. You cannot use hard money on an owner-occupied property.
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