Hard Money Lender for Rehab?

Question

Howdy! I recently closed on my first duplex (second property!) and it is in dire need of rehabbing. Which is exactly what I wanted! I bought for $700k and the comps in this neighborhood support $850k+. Currently, the plan is buy and hold.

This duplex needs about $50k in repairs and I'm considering using a hard money lender to fund the rehab, then refinance and pay them back. The way I see it, this comes with at least three potential set backs:

• The appraisal could come back lower than anticipated;
• The rehab will inevitably cost more than projected; or
• I'm not able to get as much in rent as I would like.

I'm wondering if anyone has any experience using a HML for a similar project, how it went, if you have a HML you'd recommend, and what advice you'd give someone who is considering this plan.

I just have to say: the BiggerPockets community has done more for me and my portfolio than over a decade of financial advisors. You guys are sincerely the best and I appreciate you taking the time to give some input!

Joshua J Cawthorn · Answer

Thank you for the reply, Kelly! That's great input, I think I'll start reaching out to some local credit unions today! A HELOC seems like a superior option anyway. Bottom line: I'm just interested in borrowing enough money to fund a rehab, hopefully get a decent appraisal for a refinance, and then pay back the money.

Kerry Baird · Answer

@Joshua J Cawthorn

Had money lenders don’t typically lend to owner occupants. You’d do better to get a HELOC with a local credit union. Some do desktop underwriting vs a full appraisal.

If the condition is too rough, such as termite evidence, holes in Sheetrock or walls, missing rails, missing plumbing, noticeably bad roof, etc they can’t make the loan. So get the Heloc first and then remodel and then refinance when it is all done.