My partner and I are looking to purchase a property using a hard money lender or private money lender. Can anyone walk me through the “Loan to Refi Repay” process? What do the margins need to look like for it to be feasible? Do I need money to cover paying the lender back every month until the refi comes through? Does this process only work if the property needs to be flipped? How much do I get in the refinance?

This is all 100% dependent on the terms of the financing.  Look at the terms of your options and then make a decision from.  In order for a bank to refi, you will need to season the loan for at least 6 months.  Hard money and private money both tend to be expensive, so you'll want to make sure you factor in that cost when calculating your deal. 

@Sarah Brown is this a process people use often? Or just the investors on tik tok? While that may seem like a silly questions, it seems like a strategy that is often emphasized without any great detail into the risk.

@Samuel Iddings it depends on the investor and how aggressive they are.  Owner carry is technically private money, and if the terms are good, then it's worth it to stick with them for a while.  Hard money is regularly used for flips, though I have seen an investor use it for a great buy and hold opportunity and they needed quick cash to get through a deal.  I am not going to call it super common, but useful tool when the need arises which I have seen utilized.

I think your biggest risk is being able to pay the terms of the loan until you can refinance back into a traditional mortgage. Like Sarah mentioned you need to calculate these costs into the deal. I think the bigger concerns would be making sure my rehab budget and timeline are sound. Underestimating theses can spell disaster as they are going to affect your carrying costs. Always build in contingencies when rehabbing because we all know construction takes longer and costs more than you originally think.

@Samuel Iddings I would agree with what everyone is saying so far. You need to have a plan and see what works best with you. Every lender will have their own strengths and weaknesses but they should ultimately matter if it works with your planning. For example; you identify as a rental property investor. So let's assume you find a great house but the seller is only willing to accept cash or hard money because they need to close within 2 weeks or less. If the house is a good deal and you are comfortable with the rates your HML will offer then jump on it. If you feel the carry cost will eat too far into your profit then don't take the deal.

Regardless if you are flipping, buying turn-key rentals or do a BRRR Strategy you should always keep the following in mind:

• - Rate
• - Origination costs
• - Term (12 months, 24 months, 360 months, etc.) 
• - Pre-payment penalty or exit fees, if any
• - LTV/ARV financed
• - DSCR/cash-flow requirement

I would also encourage you to ask if they are a direct lender, typically deal/process flow and what happens if you need to extend the loan. This should give you all the costs you would need to account for deciding if using a specialized lender is right for you. 

@Samuel Iddings , Are you planning on remodeling the property or forcing appreciation at all? If not, it won't be worth using hard money. 

Let's say you buy a property for $250k, and you put $50k down. you'll be borrowing $200k. Rates can vary, but let's assume the loan costs 2 points ($4k) and 12% interest ($2k/month). You will also have to pay for a title policy, some closing fees, and maybe a BPO or appraisal. Let's say that's another $2k. For 6 months, this loan will cost you $18,000 - PLUS, once you refinance, you'll have those origination fees, title fees, appraisal/bpo, etc AGAIN. 

Investors usually do this when they are increasing the value of a property by a large margin, or if they can get private money terms that are much more favorable (like 8% with no origination fees). 

@Samuel Iddings

Here is the process

Find a hard money lender.  Review the terms they will provide.  Figure on 85% loan to cost meaning you'll have to have some skin in the game.  Now find a long term hold lender and find out what their title seasoning requirements are.  Also find out what the max loan to value they'll go on a cash out refinance.

Stop.

Here's where the math is really important. A great rule of thumb is to KNOW that you're not going to more than 70% of the ARV (after repair value) when all is said and done. That means you have to buy the property right. Here's an example.

You pick up a single family residential that looks like crap, but has good systems and a good roof and a good foundation for $100K.  You clean it up.  New carpet or sand/refinish the hardwood.  Paint.  New deck and landscaping.  Exterior painting.  Now you're $40K into it and ready to refinance.  Contact the take out lender you spoke to when you started this odyssey to make sure they can do what they said they would do before you started.

Stop

You have to have the property stabilized and have to have owned it for 6 months before you can do anything in terms of refinancing so factor in the monthly carrying costs (that hopefully can be offset by rents).

Go

Now you're ready to refinance.  6 months have elapsed.  The property is rented and your title is seasoned.

Refinance into a long term financing vehicle or sell it and reap your reward.

Those are the steps in a nutshell.

Stephanie

@Samuel Iddings If your property doesn't need work,you should try a standard mortgage.If the property needs work and you use a HML,you would purchase the property,repair it then refinance or sell if it was a flip.That is when the lender gets repaid for whatever is left on the loan.Generally you pay an interest only payment during the repair process and pay the balance at the closing.If your a numbers guy here is one of mine.

PP 55,000

Rep 30,000

My loan was for 72,000 55k les 20% 30k for repairs. At close I had not used all the repair money from the draws.

I sold for 146,000 I owed them 63k but I also could have refinanced up to 70% of the new ARV or 102,000.I would have came out 15k ahead with a mortgage.

Originally posted by @Daniel Molina :

@Samuel Iddings I would agree with what everyone is saying so far. You need to have a plan and see what works best with you. Every lender will have their own strengths and weaknesses but they should ultimately matter if it works with your planning. For example; you identify as a rental property investor. So let's assume you find a great house but the seller is only willing to accept cash or hard money because they need to close within 2 weeks or less. If the house is a good deal and you are comfortable with the rates your HML will offer then jump on it. If you feel the carry cost will eat too far into your profit then don't take the deal.

Regardless if you are flipping, buying turn-key rentals or do a BRRR Strategy you should always keep the following in mind:

• - Rate
• - Origination costs
• - Term (12 months, 24 months, 360 months, etc.) 
• - Pre-payment penalty or exit fees, if any
• - LTV/ARV financed
• - DSCR/cash-flow requirement

I would also encourage you to ask if they are a direct lender, typically deal/process flow and what happens if you need to extend the loan. This should give you all the costs you would need to account for deciding if using a specialized lender is right for you. 

 I appreciated the break down at the end. Very helpful.