Hard Money loans?

Private Lending & Conventional Mortgage Advice
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Hard Money loans?

Roy Williamson
Rancho Cucamonga, CA · Member since 2013 · 58 posts · 9 votes
Has anyone used hard money loans to purchase a buy and hold rental property? I have excellent credit and cash reserves, but I want to buy a fixer and don't want to deplete my reserves on one property. Has anyone taken this approach? If so, how did it work out? and if not why would you never do a deal using hard money?
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Don KonipolBusiness Member
Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
12y

@Roy Williamson , I am a long time hard money lender. Here is my bottom line advice. If you can get low interest conventional or private financing do it. Only consider hard money when the only other alternative is an equity partner.

If you borrow hard money long term from me, you will do all the work and I will make most of the profit.

Private Mortgage Financing Partners, LLC
WebsiteView Page
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  • Jean Norton
    Flipper/Rehabber · Austin, TX · Member since 2009 · 405 posts · 168 votes
    12y

    Depending on your location, I'm seeing some hard money lender's offer a "hybrid" platform...one where you get the hard money loan at rehabbing prices, then when you get a tenant in place they will lower the interest rate. I hope this helped.

    0Reply
  • Roy Williamson
    OP
    Rancho Cucamonga, CA · Member since 2013 · 58 posts · 9 votes
    12y
    Jean Norton Thanks for the response. The hybrid loan sounds interesting. I live in SoCal my closet lender is the Norris Group. I will check with them.
    0Reply
  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    12y

    @Roy Williamson , I am a long time hard money lender. Here is my bottom line advice. If you can get low interest conventional or private financing do it. Only consider hard money when the only other alternative is an equity partner.

    If you borrow hard money long term from me, you will do all the work and I will make most of the profit.

    Private Mortgage Financing Partners, LLC
    WebsiteView Page
    3Reply
  • Jean Norton
    Flipper/Rehabber · Austin, TX · Member since 2009 · 405 posts · 168 votes
    12y

    Yes, The Norris Group was one of the first to offer this.

    0Reply
  • Roy Williamson
    OP
    Rancho Cucamonga, CA · Member since 2013 · 58 posts · 9 votes
    12y
    Don Konipol Well I'm not looking to do a long term long. Just one to purchase the property and do the rehab. I have good credit and I'm sure I can refi into a conventional loan rather easy.
    0Reply
  • Gerald Harris
    Investor · Atlanta, GA · Member since 2013 · 922 posts · 336 votes
    12y

    Thanks Don

    I used hard money on my first real estate investment in Victorville California. I did not know, nor did i understand this product. All i wanted to do is get the house. 2 years later i finally refiananced into a reasonable interest rate.

    Hard money is a great temporary exit strategy and should be used as a last alternative.

    0Reply
  • Roy Williamson
    OP
    Rancho Cucamonga, CA · Member since 2013 · 58 posts · 9 votes
    12y
    Jean Norton That's great to know. The next time I talk to them I'll ask them about this product.
    0Reply
  • Roy Williamson
    OP
    Rancho Cucamonga, CA · Member since 2013 · 58 posts · 9 votes
    12y
    Gerald Harris is it possible to refi to a conventional loan sooner than that? I would only want to use hard money for 3 months tops.
    0Reply
  • Gerald Harris
    Investor · Atlanta, GA · Member since 2013 · 922 posts · 336 votes
    12y

    hey roy

    My issue was my income and credit. This is why i got stuck in the hard money deal.

    0Reply
  • Roy Williamson
    OP
    Rancho Cucamonga, CA · Member since 2013 · 58 posts · 9 votes
    12y
    Gerald Harris Ok I understand. I have good paying very stable job. I have excellent credit. I figure I can refi out of the loan easily, so I can purchase and rehab a property without putting 20% down plus rehab cost. That's the only reason I'm considering using hard money. I can do my deal without it, but I guess I'm just trying to stretch my cash to buy more.
    0Reply
  • Jeff S.
    Lender · Los Angeles, CA · Member since 2009 · 1k+ posts · 2k+ votes
    12y

    Both @Don Konipol and @Gerald Harris gave you great reasons why this is not a good idea, @Roy Williamson . Hard money is not long term money and you can get trapped without an assured exit strategy.

    "I figure I can refi out of the loan easily…" is not an exit strategy. It's a hope and guess at best, unless you've been pre-approved, and even then there is no assurance until the refi loan is funded. Any astute HML will want to see a more certain exit strategy.

    A cheaper, less risky approach might be to buy the home with your own cash and then refinance. If you're correct, you'll be out as fast as you think. If not, you'll own the house for cash and won't be on the hook long-term with a hard money loan that could bleed you dry. Doubtful many HML's would go for this anyway.

    0Reply
  • Jim M.
    Contractor · Orange County, CA · Member since 2011 · 6 posts · 0 votes
    12y

    Kind of an interesting Banter going on here about HML vs Cash Vs Conventional

    While I too have never used HML here are the things I think about with them

    For easy math lest use $200K as the loan amount

    The assumed qualifiers for the person who are looking to borrow are Solid credit, willing to allow 1st position to the HMlender, Able to have their own skin in the game vis a vie capitol for renovations etc… Targeted a real deal.

    My questions would be for Don Kanipol HML guy what is the cost of this 200K capitol for 120 days?

    Then compare what Gerald and others paid for the same

    Then compare this with industry standards That for me are really not known and snake oil like

    0Reply
  • Marcia Maynard
    Investor · Vancouver, WA · Member since 2013 · 3k+ posts · 4k+ votes
    12y

    @Roy Williamson Do you own your primary residence free and clear? How about a HELOC? We keep a $100K HELOC available at our credit union. $25 a year keeps it open and if we borrow on it the rate is 3.25%. We use it only for emergencies or for short term movement of cash if we are doing a buy. Don't know if it is a good alternative for you or not, but worth looking into.

    @Don Konipol Thanks for your candidness about HML. :-)

    0Reply
  • Travis McCamish
    Real Estate Investor · Tempe, AZ · Member since 2013 · 7 posts · 0 votes
    12y

    @Marcia Maynard How would I go about opening that kind of credit line?

    0Reply
  • Marcia Maynard
    Investor · Vancouver, WA · Member since 2013 · 3k+ posts · 4k+ votes
    12y
    Originally posted by @Travis McCamish:
    @Marcia Maynard How would I go about opening that kind of credit line?

    Everyone's situation is unique. You may want to talk with your banker and see what options are available to you.

    We have several accounts at a local credit union. They contacted us and offered to extend a line of credit to us, secured by our primary home.... a HELOC. Our home is paid in full. We maintain credit scores at about 800, sometimes a bit lower, sometimes a bit higher. We have no debt, other than mortgages, and each with at least 20% down. We have several rental properties paid in full. We have good long term employment. We have a favorable loan history. We are a good credit risk.

    We would not use our HELOC for a long term loan. Although the interest rate has stayed the same since we opened it many years ago, it is subject to change. We also wouldn't want to put our primary home in jeopardy. We use the HELOC wisely and only for short term quick cash.

    If you are a good credit risk and approach a number of lenders, you may find a good deal like we did. Good luck!

    0Reply
  • Scott Goulet
    Rental Property Investor · Port Saint Lucie, FL · Member since 2015 · 107 posts · 44 votes
    8y

    @Don Konipol. Question regarding the refinance process out of a hard money loan: 

    For example I use you as a hard money lender to purchase a property for $200K plus $30K rehab. i put 20% down and we close on the deal. 

    After the rehab, I want to rent out the property and put conventional money on it, I assume the bank i get the new loan from would look at my debt to income ratio correct? 

    How do guys do it that do a lot of flipping? I make decent money ($70K per year) and I have two properties right now, my primary residence and a rental property. The banks tell me my debt to income ratio is maxed out. 

    How do I get around the debt-to-income ratio? 

    thanks! 

    0Reply
  • Darrell Smith
    Rental Property Investor · Pembroke Pines, FL · Member since 2018 · 7 posts · 2 votes
    8y
    @Scott Goulet I did a deal last year and just refinanced with quicken loans its easier when you had the property rented out for a year and a lease in place.
    1Reply
  • Scott Goulet
    Rental Property Investor · Port Saint Lucie, FL · Member since 2015 · 107 posts · 44 votes
    8y

    @Darrell Smith Yeah, that makes sense. So realistically 1 property per year is about it, unless I take on other investors or purchase cash somehow, is my understanding correct? 

    0Reply
  • Darrell Smith
    Rental Property Investor · Pembroke Pines, FL · Member since 2018 · 7 posts · 2 votes
    8y
    @Scott Goulet yes I believe that will work I tried to acquire another property recently and they just denied me last week ,dept to income ratio to high , so now I have to go the hard money or private lender route.
    0Reply
  • Scott Goulet
    Rental Property Investor · Port Saint Lucie, FL · Member since 2015 · 107 posts · 44 votes
    8y

    @Darrell Smith i guess we have to be realistic. I listen to the BP podcast everyday and every makes it sounds so easy, " o yeah i did 12 deals this year" how much money do you make at your day job? lol its crazy. but one step at a time i guess. 

    0Reply
  • Darrell Smith
    Rental Property Investor · Pembroke Pines, FL · Member since 2018 · 7 posts · 2 votes
    8y

    @Scott Goulet yes we do have to be reaI,I  got a little frustrated after they denied me but now a better deal just fell in my lap, we have to keep it moving. trying to acquire as much cash flowing properties as possible. 

    0Reply
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