Newbie House Buyer/House hacker

Flipper/Rehabber · Chandler, AZ · Member since 2020 · 4 posts · 0 votes

Is it a good idea to purchase a 230k property with a Hard Money Lender? This is my first home purchase in which I already have a tenant (family member) set up.

The house doesn't need any work, but I am really wanting to throw myself in the process of buying a home and go through the live and flip process.

Because I live by 1099's it will take too long to get a traditional mortgage, so I was thinking about approaching a Hard Money lender.

This is all in Phoenix Arizona.

Your thoughts are appreciated!

Joe

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David MartinPro Member

Cypress, TX · Member since 2016 · 137 posts · 119 votes

@Sho Firecomm No shade man, but you have me so confused... how are you "really wanting to throw myself in the process of buying a home and go through the live and flip process" on a house that you say doesn't need any work? What's there to flip or rehab?

Related to your question... I think you're too much at risk with a house with no (known to us) opportunities to rapidly increase it's value to cover an LTV spread when it comes time to refinance out of that hard money, so you're either going to bleed slowly to death on paying interest to hard money that you can't get out of, because you can't get anyone to refi, or you're going to end up having to hustle extremely (read this as take on another job or two) to pay that thing down until you're in that range to refinance. Your only saving grace in this scenario is if appreciation in your area is going up insanely fast, like 20% a year or something. Cheap money > Easy Money

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Zach Wain
Scottsdale, AZ · Member since 2019 · 435 posts · 248 votes
6y
Joe - Have you talked to a quality lender and run through pre approvals yet? Conventional financing is extremely cheap compared to Hard Money. I would not go down that path unless you exhausted your conventional financing options. Serious $$$ differential
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Jeffrey DanielsBusiness Member
Real Estate Broker · Phoenix, AZ · Member since 2016 · 68 posts · 38 votes
6y
Which model are you planning on here? To flip, or BRRRR? If you're thinking flip, you're not going to be putting a family-member tenant in there. If you're going to make any profit under hard money, you'll need to sell before the % eats you up. If you're going to BRRRR, depending on the specifics of the property - you may not be able to rent it and profit under hard money. I agree w/ @Zach Wain that conventional should always be less costly financing. Unless you just started 1099, income is income for getting approved, right?
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David MartinPro Member
Cypress, TX · Member since 2016 · 137 posts · 119 votes
6y
@Sho Firecomm No shade man, but you have me so confused... how are you "really wanting to throw myself in the process of buying a home and go through the live and flip process" on a house that you say doesn't need any work? What's there to flip or rehab?
Related to your question... I think you're too much at risk with a house with no (known to us) opportunities to rapidly increase it's value to cover an LTV spread when it comes time to refinance out of that hard money, so you're either going to bleed slowly to death on paying interest to hard money that you can't get out of, because you can't get anyone to refi, or you're going to end up having to hustle extremely (read this as take on another job or two) to pay that thing down until you're in that range to refinance. Your only saving grace in this scenario is if appreciation in your area is going up insanely fast, like 20% a year or something. Cheap money > Easy Money
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Zach Wain
Scottsdale, AZ · Member since 2019 · 435 posts · 248 votes
6y
@Jeffrey Daniels - "Unless you just started 1099, income is income for getting approved, right?" Mostly correct. Sometimes DU (Fannie Mae approval system) will allow for 1 year of tax returns on certain approvals. Otherwise, a 2 yr avg is required. If you just started, correct - there is no history or evidence of what write offs the client will have so we can not determine income
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Sho Firecomm
OP
Flipper/Rehabber · Chandler, AZ · Member since 2020 · 4 posts · 0 votes
6y
Thank you for all your replies!!!! Really appreciate the feedback. YOU GUYS ARE AWESOME!!
Would you suggest for my first purchase to do a BRRRR?
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Odie Ayaga
Specialist · Delran, NJ · Member since 2016 · 2k+ posts · 951 votes
6y
If you don't qualify for conventional, but you want to get started there are long-term hard money loans available. Once you're able to qualify you could refi out.
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Jeff Cichocki
Lender · All 50 States · Member since 2015 · 401 posts · 250 votes
6y
@Sho Firecomm,

There's no right or wrong answer as to Flip or BRRRR. It all depends on what you want. Flips are great because they generate bigger chunks of cash. BRRRR is great because it helps you build up monthly income. Which is more important to you? My business partner & I do both. Because there's two of us, we an do two strategies at the same time. Doing both at the same time may be more than your time will allow.
The correct answer is whichever you are the most passionate about and fits your goals.
Good luck!
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Jon A.
Asheville, NC · Member since 2017 · 385 posts · 274 votes
6y
I would think that the properties themselves would dictate what you should do with them. Look at everything and explore all of your options. A flip, in my opinion, is speculative and risky and just creates a job for yourself that you will pay taxes on. A Brrrr is an investment in your future that requires management for the long term and refinancing to get your money back out isn't always that easy. Especially if you just started a 1099 history. They are completely different animals. Personally, I would never want to rent to a family member or a friend. That is just going to make it that much harder to run it like a business. I am surprised no one brought that up.
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