Difference between Hard and Private Money for rehab on existing distressed rental?

Question

Long story short, my father passed away, I am helping my elderly mother with figuring out her best exit strategy

Property was purchased in 07, completely rehabbed in 2019 and will be vacant during construction due to an eviction mediation agreement.

Current Payoff is $179k

ARV is $315,

Rehab is about $26k, 30-45 day time rehab time due to tenant neglect and damage

Exit strategy is to list for sale at $315k via the MLS (I have a broker)

She is Currently behind 3 payments at $1297 each as well as looking to finance the carrying costs during rehab until sold. 640 credit score looking to secure which ever is better for this situation, hard or private money.

I've been in investment real estate for almost 20 years, started out as a flipper, with extensive construction knowledge and moved my way up to wholesaler, I personally can't fund this at this time and I would appreciate and love suggestions

Caroline Gerardo · Answer

If she DOES NOT live in it there are a number of options, all are expensive. You mention "tenant neglect" so I assume it was rented.

Where is it located? SFR or condo? HOA?

She will need the now 4 payments plus tax and insurance arrears so $5200 plus $26000 cash back plus all the title escrow settlement appraisal another $4000 plus points with that score maybe 2-3 points There is room to do this BUT is that the best choice for Mom? Has she been filing IRS taxes on this rental and what is her tax situation when she sells? Get a CPA to look at what she paid, depreciated, improvements...

If you sell for $295000 today as is without doing anything but finding cash buyer is that a better choice for Mom? No work, no stress, no more servicing bank calls?

Ask the servicer for a modification package tonight in writing. see my DM

Do you have the statement and a verbal payoff?

What are the comparable sales in past 3 months with a loan?

John Morelli · Answer

The scenario you've outlined is best suited to hard money, since your lending needs are transitional, involve light rehab, and would benefit from building an interest reserve into the loan for at least a portion of the term, if not full term. A six months interest reserve is fairly standard with a 12 month term, and will work well with the LTV, ARV, and intended exit plan being the sale of the property.

The financing you'll need is readily available in the market from local hard money lenders, and as others have mentioned, the credit will not be of much concern, provided the ARV comps hold up and the budget for the scope of work is in line.

Good luck to you and your Mother. Let me know if I can be of any help.

Andrew Postell · Answer

@Richard Gettemy if you are fixing the property up to rehab it a hard money loan seems to be the best fit.  A hard money loan in this scenario would usually lend 70% of the ARV ($220k) which is enough to fit everything in.  The HML would payoff the current mortgage (and the payments that are behind) and have enough room to fit in the rehab.  If your mom still owns the property, she would need to be the one on the mortgage though...some HML's don't care about credit and some do but whomever owns the property would need to be on the loan.  Do you know any HML's in your area?  I do like the idea of just selling it in it's current condition...but as mentioned above, you'll either need to buy some time or close quickly.

Hope you find a good solution.

Richard Gettemy · Answer

Thank you for your detailed response! Yes it was rented, north Aurora, Illinois 60542 SFR No HOAdefinitely $295k cash today is a better option

I’m meeting with her this morning and we’ll call the servicer as described, thank you

yes I have the payoff and I’ll have to verify comps with mortgages today as well. i replied to your DM and thank you again for taking the time to respond!

Difference between Hard and Private Money for rehab on existing distressed rental?

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