Hard Money, Bank, Private Financing ?

Question

Ive decided I want to create financial freedom through real estate investing. And the BRRRR method (Multi-unit)  is the way I want to go with flips on the side.

Im about a month in on learning and self educating, I have a few quick questions about the financing/Money part of the deal.

With Hard money lending do you pay monthly payments on the interest of the loan as soon as you close the deal?  For example: 100k loan for the house, 8-14% Interest, Monthly payment 8-15,000

How would you be able to pay that monthly payment while in the process of rehabbing and putting tenants in place if your just starting out?

If the goal is to refinance and then pay off the Hard money loan. If you had a plan together and in place Would the lender wait 8-12 months before the first payment? Is that normal? Until Ive completed the Refinance to pay them back?

I do apologize for the long paragraph would love some feedback on this if possible,

Thank you all,

Stephanie P. · Answer

To figure an interest only payment it's:

Loan amount x interest rate / 12 months.

100,000 x 12% (.12) = $12,000 / 12 months = $1,000 per month payment interest only.

You should be able to get in and out of a flip in 6 months.  Much longer and you're eating into your profits.  Carrying costs are a major factor in profitability.

Mark Safrin · Answer

@Roy Means

The interest Rate being charged is an annual rate. So a 100K loan at 8% interest only is $8,000 per year. For monthly repayment divide by 12 so its its $666.66 per month. Hard money is not THAT hard. ;)

You are going to need cash reserves. Both for initial interest payments until it is stabilized/flipped and to finance each rehab draw until it reaches your bank account. This should all be included in your calculations before you purchase and take the loan.

If you don't have rehab experience and are operating under tight financial constraints, consider obtaining advice from someone experienced as to how long, how much and how doable the rehab will be.

Best wishes in your plans!

Roy Means · Answer

@Stephanie P.  Okay wow! That makes sense. I was so worried, i really thought it was going to be much much higher. Thank you for the clarity.

Roy Means · Answer

@Kyle J. Thank you for your response.  So if the Hard money loan term was for 12 months and the loan was for 100k (100k divided by 12 months = 8,3333) plus interest?

Should the term be longer? To bring the monthly payments down?

Would you have any recommendation on how long you should keep the short term loan before refinancing?

I’ve been seeing 12-24 months on some lenders sites.

Thanks,

Kyle J. · Answer

@Roy Means While it is possible to find a private/hard money lender that would be willing to forgo the monthly payments and just let them accrue until you sell or refinance the property, that is not the norm.  Most are going to require monthly payments.  That's why you need "some" money to get started in real estate and lenders like to see cash reserves.

However, you may not need quite as much as you think because your math is a little off.  With private/hard money loans, it's common to make monthly interest-only payments.  So, using your example of a $100k loan at 8-14% interest, the monthly interest-only loan payment on that would range from $666.67 (8%) to $1,166.67 (14%).

Hard Money, Bank, Private Financing ?

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