Using Hard money upfront then converting to DSCR loan

[Chris Thomas]

I’m trying to understand how to go about purchasing properties that need rehabs with hard money then converting to a dscr loan after the rehab and new appraisal have been completed. If anyone could layout some basic steps on how to do this it would be much appreciated thanks!

[Robin Simon]

Quote from @Jayson Cain:

@Chris Thomas - I've been both a lender and an investor and here are the basic steps you can follow:

1. Find a Hard Money Lender: Start by identifying reputable hard money lenders who specialize in financing rehab projects. They will assess the property's value based on its after-repair value (ARV) and lend you a percentage of that value to fund the purchase and renovation.
2. Secure the Hard Money Loan: Once you've found a suitable property, submit your application to the hard money lender and provide the necessary documentation, such as the property details, rehab plans, and your financial information. If approved, you'll receive the funds to purchase the property and begin the renovations.
3. Complete the Rehab: Use the hard money loan to finance the property purchase and carry out the necessary renovations. Ensure that you stick to your budget and timeline to maximize your returns.
4. Get a New Appraisal: Once the rehab is complete, hire an appraiser to assess the property's value based on its improved condition. This appraisal will be crucial when transitioning from the hard money loan to the DSCR loan.
5. Apply for a DSCR Loan: Contact lenders who offer DSCR loans and provide them with the updated property appraisal, your financial information, and any other required documentation. They will assess the property's income-generating potential, such as rental income or projected cash flow, to determine your eligibility for the DSCR loan.
6. Convert to DSCR Loan: If approved, the DSCR loan will replace the hard money loan. This type of loan considers the property's income potential and cash flow to determine the loan amount and interest rate. It allows you to secure long-term financing with potentially better terms and lower interest rates.

Remember, each lender may have different requirements and processes, so it's essential to research and compare multiple lenders to find the best fit for your needs.

Reach out if you have any additional questions from the steps above. :)

This is generally solid except be careful on #4. DSCR Lenders will not let you order your own appraisal and "bring it to them" - Any DSCR Lender (thats not committing fraudulent practices) will require an appraisal ordered through an AMC or their processes to ensure independence and no funny business