Hard Money or My Money?

Question

Hey All!

I am getting started in the Kansas City area, looking to purchase some buy-and-hold properties. I have about 30K that I could invest, and I'm wondering if I should go that route, or try to get hard money loans to finance these initial investments. Total purchase price of initial property investments (meaning in the next 6 months) would be around $120K.

Thanks

James Kandasamy · Answer

Katy C.  You can use Hard money for few months until the rehab is completed. After that quickly refinance that loan with conventional Fannie Mae loan to get that cash flow due to lower interest rate.. That's where you use leverage the best. The strategy is called Double close.

Rick Baggenstoss · Answer

I think it's best to use your own money with less expensive or no financing.  If you go too fast, leveraging up with every chance you get, you'll be facing a severe financial crisis at some point.

If you haven't asked local banks, friends & family for participation, then you shouldn't be looking at hard money.   Keep looking for killer deals that others would love to be part of.

Did you run some example numbers?  With/without HML?

Rick

Katy C. · Answer

Wow, thanks everyone. I am much clearer on my financial strategy now.

@Aaron Mazzrillo

Good point. If the numbers work, they work. If they don't, they don't.

@William Robison

Thanks. I see how it could be much more difficult for long-distance investments.

@Shaun Reilly

Well said. Makes a lot of sense to only use hard money for short-term holdings.

William Robison · Answer

Hello Katy C.

Using hard money from a distance can be a challenge.  Because it is so expensive, it can be difficult to manage day to day from 1000+ miles.  Have you given consideration to HomePath properties that would provide for lower down payment requirements?  With just 10% down, you would be able to spare some of your cash for a rehab.

Aaron Mazzrillo · Answer

The name of the game is leverage. If the properties still cash flow with hard money, go that route and diligently work your connections so one day soon you can replace those loans with lower interest rate private lenders.

Shaun Reilly · Answer

Have you looked into bank loans?

Can you and/or the properties you are looking at not be able to qualify?

Hard money is not a good option for hold properties generally.  Really the only time it can make a lot of sense is if you are doing a cash purchase of a really bad fixer that won't qualify for a loan.  Buy, Fix then Refi to get out of the super expensive loan.

If you are just getting into things at a distance I would not recommend getting into dilapidated places to start.  Get a place that is in good shape and get rented quick to get a feel for the process, being a landlord, and get to understand the area better.  Once you have a little experience then maybe try to get the sweat equity.

Andrew Syrios · Answer

Welcome fellow Kansas Cityian. I would go the leverage route probably, although if you can find private lenders like ma and pa folks who are only getting 0.2% or whatever in a CD that you can offer 8-10% interest, that would be the best route.

Eddie Martinez · Answer

30k on a 120k house doesn't seem like it would cash flow too well. I would suggest trying to find another property for a great deal.

Here in Belton there are half side duplexes going for 62k and renting for 600-750/month.

Hard Money or My Money?

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