Traverse City, MI · Member since 2018 · 10 posts · 2 votes
Hello BP fam, I have found a STR deal in the Upper Peninsula of Michigan. The owner was my neighbor growing up so he's giving me a good deal on it. It's not finished so pulling a regular loan could be difficult, plus the owner is giving me a good deal if I give him all cash. I have half of the cash but will need more. I've never dealt with hard or private money and was looking for some tips with it and any recommendations on who to use. Let me know. Thank you.
Realtor · Washington, DC · Member since 2013 · 91 posts · 32 votes
4y
Hey Bruce, pretty exciting opportunity to come across. Having a good amount of cash reserves as you do will definitely help with getting a good rehab loan from a hard money lender. Most hard money lenders will provide 80%-90% of the total cost of the project, including acquisition and construction. Some investors I work with only use the hard money for the acquisition to avoid the fees and inspection delays during the construction period, when the lenders provide construction draws. Interest rates can vary from mid 7% to 11% apr, depending on your experience, FICO score, and the property. The terms are usually 12-18 months, so you need to either sell the property at the end of the term, or refinance into a long-term rental loan.
Some investors balk at using hard money because of the higher interest rates, and indeed it can be risky if you have thinner margins or if the project takes longer than expected. I recently had to go through a 9 month zoning variance on a flip and if we had hard money it would have eaten into all our profits. A private loan from a friend, family member or acquaintance can be easier to manage for this reason, but has its own pitfalls as well.
I would be happy to talk more specifics about your project if you like at any time.