What does the seller see? Hard money lenders.

Question

We're starting to seriously consider BRRR as a strategy, but are very inexperienced with hard money lenders.  I'm going around trying to set a couple of meetings to talk to lenders, I think a conversation is always a good starting point.

That being said I was wondering how the seller of a property sees hard money.  Since it seems to differ to a conventional loan, and I understand it to be more of a "bulk" package of money...is the seller under the impression this is a cash offer? How does hard money look  like to them getting the funds, basically?

Thanks!

Kyle J. · Answer

If you're dealing with sellers of off-market properties, the reality is they don't really know the difference.  Once the escrow closes, it all looks the same (cash to them or their loan gets paid off) regardless of where the money comes from.

If it's a listed property, the listing agent just wants to make sure you have the ability to close.  Not sure what you mean by a "bulk package of money", but whether you're using a conventional lender or a hard money lender...they're still a lender and you really should be making an offer with a financing contingency as opposed to a cash offer if it's a listed property.

A cash offer means you personally have all the cash necessary to close in an account with your name on it and can show that as proof of funds when asked by the listing agent.  If you're borrowing the cash from someone else (i.e. a lender), you're financing the transaction.

Make sense?

Matthew G. · Answer

@Ignacio Rosenberg Whether it is cash, hard money loan, or conventional loan, the money should go through escrow. Once the funds are in escrow, the seller will get paid by the escrow company. There is no difference in how a seller will see this money deposited into their account. What they will see is how fast they are paid once they sign the paperwork to sell.

Kyle J. · Answer

As I mentioned before, there really isn't much difference in how the seller sees it from their end.  I'll give you a few examples:

Example #1 - I bought the house I live in using a conventional mortgage.  When I bought it, the bank wired the loan funds to the title company, and I dropped off a cashier's check to the title company for the down payment.  When escrow closed, the seller's mortgage was paid off and the seller got whatever money they were due above that.  The seller would have had no idea how much the bank wired into escrow or how much I paid via cashier's check, nor would he have cared as long as he got his money.

Example #2 - The last two rental houses I bought were all cash deals.  I simply dropped cashier's checks off at the title company (though I could have wired the money).  When escrow closed, mortgages were paid off and sellers got whatever money they were due above that.  I guarantee they had no idea how the money got to the title company, nor did they care.  It could have come from a lender or it could have come from me (which it did).  They didn't know and didn't care.

Example #3 - I recently funded a purchase as the lender (private money lender but hard money lender works the same).  In this deal, I simply wired the money to the title company (though I could have dropped off a cashier's check like I did in the previous example - it's simply a matter of choice/convenience).  When escrow closed, the seller's mortgage was paid off and the seller got whatever money they were due above that.  The seller would have had no idea how I funded escrow, nor would she have cared as long as she got her money.

So, even given these three totally different examples, do you see why from a seller's perspective it all looks the same?

And to answer your questions in your second post, as you can see from my examples, the HML isn't going to give you a check for the purchase at all.  They are going to wire/deposit the funds into an escrow account.  Those funds will never touch your hands.  If there's additional funds set aside for rehab, more than likely there will be some sort of draw schedule established with the HML for those.

Ignacio Rosenberg · Answer

Thanks Caleb!

Ignacio Rosenberg · Answer

Thanks Kyle!

I guess I don't understand how it being a conventional loan or a hard money loan differs from how the seller sees the purchase.  Taking it a step backwards, I don't know how a hard money lender supplies the funds.  I meant with "bulk package of money" that a loan from a HML is (if I understand correctly) a loan for a specific amount that also includes rehab.

So basically...does the HML give you a cheque you put into an escrow account and from there you purchase and rehab, in which case the seller would see it as cash?  That's basically it.

What does the seller see? Hard money lenders.

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