Hardmoney for Buy and hold?

25 Replies

Hello all, working on getting my first rental property. I feel as though I am decently versed in real estate and can analyze properties well. At this point I feel like I may be falling into analysis paralysis.. I'm getting stuck on making sure I have more than one financing/exit strategy. I'm looking in multi-family 3-4 units.. 5+ if it comes along.

After clearing up my personal finances, I will have enough for part of a down payment. My question is, IS GOING WITH A HARDMONEY LOAN AN OPTION IF YOU CAN PURCHASE BELOW RETAIL WITH SMALL REPAIRS NOT FOR A FLIP BUT FOR BUY AND HOLD? This seems unorthodox.

I ask this, for it to be an alternate to getting a partner or saving more to cover 100% of a downpayment. 

Any other ideas? 

@Jared W Smith the simple answer is NO

Hard money lenders what to get their money back in a short period. They won't lend long term even if the deal makes sense and cash flows with their high interest.

There is an exception. Some hard money lenders will do  a 5 year amortizations loan. Here in MD, Block M Investments will do a 5 year loan at 16%. The idea is basically no cash flow for 5 years but then you own it fee and clear.

Originally posted by @Jared W Smith :

Hello all, working on getting my first rental property. I feel as though I am decently versed in real estate and can analyze properties well. At this point I feel like I may be falling into analysis paralysis.. I’m getting stuck on making sure I have more than one financing/exit strategy. I’m looking in multi-family 3-4 units.. 5+ if it comes along. 

After clearing up my personal finances, I will have enough for part of a down payment. My question is, IS GOING WITH A HARDMONEY LOAN AN OPTION IF YOU CAN PURCHASE BELOW RETAIL WITH SMALL REPAIRS NOT FOR A FLIP BUT FOR BUY AND HOLD? This seems unorthodox. 

I ask this, for it to be an alternate to getting a partner or saving more to cover 100% of a downpayment. 

Any other ideas? 

That is not ideal but there are some loans out there for that. One example was mentioned. There are other HML that do interest only loans with balloon for a buy and hold property. I've seen terms from 1 year to 3 rates 11s to 7s.

I guess now I can better re-format my question after realizing I may have not been clear. 

I am looking at a HML with respects to buying a property, making repairs/improvement and then refinance into a more permanent loan. If there's more than a few thousand in repairs, and not utilizing a 203k loan, wouldn't it be cumbersome to get additional funds from a bank to renovate a property? The Rehab budget would have to be self-funded (or raised).

As I've seen, I'd have to just complete the rehab and stabilize property and attain permanent financing before the 1 or 2 year mark when HML is due. 

@Caleb Jordan @Ned Carey  

Ah, interesting question. I had a similar question for a lender, only in reverse. Apparently banks don't like to do renovation loans anymore? Or maybe I misunderstood him, but he basically said to try for a HELOC on our existing property, which we don't have to sell yet to be underwritten, and use the HELOC to make updates and use a conventional loan 5% down, to purchase the property. This is going to be our primary residence, not necessarily an investment property. Though I've been looking at all property with an investment lens.

I hope someone is able to answer your question though, @Jared W Smith . Because that sounds like what I’m going to need to do in the near future.

Going to follow this thread to see what comes up!

@Brent Watanabe - Thanks for chiming in. I am actually looking to HELOC my single family home for the down payment for an investment property. The HML strategy is mainly so I have the financing for the rehab of the property. It seems very viable from my research.

@Jared W Smith I should have mentioned that as an alternative. Buy with a hard money loan. Use that money to renovate and get the property up and running, and cash flowing and then refinance. This is actually a common strategy.

You are right traditional lenders don't like renovation loans and expect much more documentation than a hard money lender for that type of loan.

@Jared W Smith You thinking about doing the BRRRR strategy to start out? Are lenders willing to refinance and cash out a hard money loan?

I've seen a thread that mentions getting the entire value of the purchase and renovation on the HUD, but that means you need that much cash. I think HML doesn't work for that. But I'm still trying to wrap my head around all of it and make it work as a primary source of income. So far it seems bleak, haha.

Good luck on your purchase! Hope everything goes smoothly.

As @Ned Carey mentioned, the HML would only be for the initial "first" purchase. Then ideally I'd use the equity (HELOC non-owner occupied) on that first purchase to then attain more funds/properties. It depends what's the best route when the time comes. @Brent Watanabe

Ah, that's a nice strategy. So you get forced equity in the property, and don't necessarily cash out refi, but just get traditional financing and then use a HELOC on the investment property? I thought you couldn't use HELOC's on investment properties. Or is that a different product I'm thinking of?

Sorry, reading this...why wouldn't the HML give you only the purchase value? Wouldn't the idea be to get the proceeds for purchase AND the rehab? That's a bigger loan for the HML so they get more in interest. Then you refinance and pay off the entire HML loan...right? We are talking BRRRR here at its core...

@Joe P. I wasn't asking the right question when I posted this originally. I now know my thoughts were to buy a property that needs some renovation work. Yes I would utilize HML for the purchase and rehab and then refinance out of that into permanent financing. My biggest struggle thus far has been wrapping my head around funding my first deal purchase. Thanks for chiming in.

Originally posted by @Jared W Smith :

@Joe P. I wasn't asking the right question when I posted this originally. I now know my thoughts were to buy a property that needs some renovation work. Yes I would utilize HML for the purchase and rehab and then refinance out of that into permanent financing. My biggest struggle thus far has been wrapping my head around funding my first deal purchase. Thanks for chiming in.

Makes sense. I guess it depends on the property and what you're looking to do.


If you've got a good credit score and good plan, I assume HML would be the way to go.

My second (really my first true) investment property, I bought with a 25% conventional and have put in some cash on repairs/CAPEX. But the property was about 110k all-in, so I had that ready to go. If you've got a 400k property, its probably unlikely most folks have 100k plus repairs money laying around.

I guess every deal has to be taken on its own -- so give us the details and we can crunch the numbers and see what works best. Not every property will line up perfectly into the exact same investment vehicle.

@Jared W Smith

There are lenders who will do long term Buy and Holds. Most want to do shorter terms like a 36 month bridge. It’s interest only and you either refi or sell after 3 years. Time for value adds, rent adjustments, changing property management etc.

If you want a long term loan though you should do one with refj options.

Originally posted by @Jared W Smith :

I guess now I can better re-format my question after realizing I may have not been clear. 

I am looking at a HML with respects to buying a property, making repairs/improvement and then refinance into a more permanent loan. If there's more than a few thousand in repairs, and not utilizing a 203k loan, wouldn't it be cumbersome to get additional funds from a bank to renovate a property? The Rehab budget would have to be self-funded (or raised).

As I've seen, I'd have to just complete the rehab and stabilize property and attain permanent financing before the 1 or 2 year mark when HML is due. 

@Caleb Jordan @Ned Carey  

this is very common way to BRRRR your rentals.. happens everyday and every HML does it. they will just want to make sure you have your refi in place or your approved for a refi.. they want to know the method of repayment

Originally posted by @Nate Marshall :

@Jared W Smith

There are lenders who will do long term Buy and Holds. Most want to do shorter terms like a 36 month bridge. It’s interest only and you either refi or sell after 3 years. Time for value adds, rent adjustments, changing property management etc.

If you want a long term loan though you should do one with refj options.

Peak in KC has a 30 year non recourse product with 40 to 50% down.. primarily aimed at foreign investors rates 8 to 10% with usually about 10 points.. or 4 to 5k and no junk fees as we know every lender needs to make 4 to 5k a file in either origination fee's or junk fees and a combination of all of those .. borrowers many times get focused on points then end up with 3k of junk fee's on the HUD and then like to say hey I got 1 point LOL you simply cant stay in business as a lender if your not making at least 4 to 5k a file.. you will go broke.

@Jared W Smith - As of today I find myself in the exact situation that you've outlined above. I just found two (4) unit multifamily properties in my target area below market value that I'm looking to fund. I'm using HM to finance the purchase and rehab, with the intention to get the property fully rented after rehab (currently 62% occupied) then cash-out refinance and stabilize the loan.

My advice (if you're trying to wrap your head around funding your first deal purchase) would be to call some HML's and get details about the products that they offer, then plug those #'s into your calculator to see if they work for you.

I just bought a sfr a few days ago and have funded it and another in the following way: I get a contract on a property, and give to my portfolio lender (local bank). They order an ARV appraisal and create me a credit line for 80 % of this amount. This line will be on a 6 month term interest only. I purchase and rehab out of this until I finish or run out of their money. If so, I then use mine. Once house is complete, I get a year lease, appraiser comes back and validates the work. I pay off that line with a 30 year mortgage with same lender. That way, like Jay mentioned, the lender gets to eat long term. I don't ask rates, though I know they're fair. I set down with my lender 2 years ago and showed him my plan, and my goal of 100 doors in the next 20 years. He said you find them, we'll fund them. It works great for me. Good luck.

Clint

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