Santa Clarita, CA · Member since 2014 · 16 posts · 1 vote
So I've seen a lot of people suggest using a hard money lender to purchase a property as a way to not use his/her own money in the deal. This makes sense for a fix and flip property, but how does it work out for a buy and hold rental? I can't seem to think of a way to pay off the lender in a short term just using the rental income off the property. Cash out refi?
Or in another situation, getting a conventional loan using a hard money lender to pay the down payment. Help??
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
12y
Conventional lenders won't make the loan if the down payment is borrowed. If it is, and you don't disclose that you'll be committing loan fraud.
I wouldn't count on a cash out refi, but a rate and term to pay off the HML is possible after you have the house rehabbed and rented.
Don't head down this road with no cash of your own. Even if you can manage to get in without much cash you still need cash reserves to survive being a landlord.
Investor · Clairemont, CA · Member since 2011 · 3k+ posts · 2k+ votes
12y
In your first example yes you would need to either rate and term or cash out refi.
Your other example; I don't know of any conventional lender that would allow you to borrow the down payment money usually situations like that involve some sort of JV or partnering not lending.
You need to understand why people choose a HML for a buy and hold. It's because they have to; there is no other option. Whether it is due to property condition or a very limited time frame to close or some other reason. So it's a short term gain in order to secure the asset, then you need a long term plan once you've been able to cure whatever issue required using the more expensive money to start with.