Insight on obtaining Buy and Holds using private or hard money loans

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Insight on obtaining Buy and Holds using private or hard money loans

Michael BaradellBusiness Member
Property Manager · New Orleans, LA · Member since 2013 · 184 posts · 34 votes

Hey Guys,

I am curious on how purchasing a buy and hold property using private money or hard money loans is structured? First, what is a typical rate to offer the lender? Second, what should the terms be? I am under the assumption that you would refinance ASAP in order to pay off the original lender. Is this correct?

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Mehran K.
Investor · Wichita Falls, TX · Member since 2010 · 3k+ posts · 603 votes
12y

@Michael Baradell I highly suggest you get qualified for the refinance with your particular lender BEFORE you pick up the property with a hard money loan. You don't want to get stuck in a bad situation if you come to find out you don't qualify with your lender to refinance.

You could take on a credit partner that will be able to take the refi loan out in their name as a last resort.

Basically, be sure of your exit strategy before going in :)

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  • Dawn AnastasiPro Member
    Rental Property Investor · Milwaukee, WI · Member since 2013 · 6k+ posts · 4k+ votes
    12y

    There are many options. If your private money lender wants to do a fully amortizing loan, there is nothing wrong with that. You can do interest only with a balloon, or fully amortizing.

    Hard money lenders only want you to have 6 months to a year with their money, so refinancing is a must in that situation.

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  • Michael BaradellBusiness Member
    OP
    Property Manager · New Orleans, LA · Member since 2013 · 184 posts · 34 votes
    12y

    @Dawn Anastasi thanks for the response. I guess my question is really about refinancing. If I plan on purchasing buy and holds using hard money, will there be any restrictions when I go to refinance? Is there a max amount of properties that I will be able to refinance? Is that income based?

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  • Dawn AnastasiPro Member
    Rental Property Investor · Milwaukee, WI · Member since 2013 · 6k+ posts · 4k+ votes
    12y

    Most banks allow up to 4 mortgages.

    There's a smaller set of banks that will go up to 10.

    There's an even smaller set that will go above 10.

    It's like a funnel.

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  • Mehran K.
    Investor · Wichita Falls, TX · Member since 2010 · 3k+ posts · 603 votes
    12y

    @Michael Baradell I highly suggest you get qualified for the refinance with your particular lender BEFORE you pick up the property with a hard money loan. You don't want to get stuck in a bad situation if you come to find out you don't qualify with your lender to refinance.

    You could take on a credit partner that will be able to take the refi loan out in their name as a last resort.

    Basically, be sure of your exit strategy before going in :)

    2Reply
  • Dean Letfus
    Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes
    12y

    There are a large number of hard money lenders now doing 5 and ten year loans. We work with one main one in memphis but have 2 others who do most states. Rates are high, 7 to 12% but it is non recourse and fast so it allows you to buy more houses while you sort out your bank lending at better rates.

    All the lenders we use allow you to pay extra amounts and there is no early repayment penalty.

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  • Michael BaradellBusiness Member
    OP
    Property Manager · New Orleans, LA · Member since 2013 · 184 posts · 34 votes
    12y

    @Mehran K. thanks for the advice. I currently own three homes but have yet to go through the refinance process. It seems as it is pretty much the same as if you were purchasing a new property. I was hoping the guidelines for refinancing would be more lenient than they are, considering I already own the property.

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  • Michael BaradellBusiness Member
    OP
    Property Manager · New Orleans, LA · Member since 2013 · 184 posts · 34 votes
    12y

    @Dean Letfus that seems like a great idea!! I will check into this a little further. For some reason Hard money lending intimidates me a little. The idea of having a bigger cushion to fall on eases my hesitation in using them.

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  • Dean Letfus
    Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes
    12y

    It's a foreign concept to me as a non American but it is easier for us than dealing with your banks, THEY are scary to me :-)

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  • Dewayne Gammel
    Real Estate Investor · Memphis, TN · Member since 2013 · 37 posts · 21 votes
    12y
    Dean Letfus Who is the HML in Memphis? Do they do 10 year amortized terms? Thanks in advance
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  • Dean Letfus
    Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes
    12y

    Providing the property is good enough location wise yes they will. One of their staff lurks on here but I can't remember his name. Company is

  • Bridge Capital Thrift & Loan, LLC
  • Address: 5851 Ridge Bend Rd, Memphis, Tennessee 38120, United States

    Phone:(901) 869-6603

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  • Curt DavisBusiness Member
    Flipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
    12y

    The company has a few programs. If you are talking about a true hard money loan which is usually 6 month or less you will typically need a pre approval letter from the bank to show who will refinance you.

    They also do private loans for US and foreign investors. Here are the standard terms they offer that I know of:

    40% - 50% down, 5% loan origination fee, 12% interest rate, 5-7-10-12-15 year fully amortized loans. Depending on the location and quality of the home will depend on the length of the loan. Dont expect to buy a home for $60k on a 10 or higher loan term.

    They only offer non recourse if you are buying with an IRA which requires the loan to be that way. They underwrite their loans just like a normal bank does as well.

    We have had our clients use them several times especially with foreign investors as one benefit is that if you get a loan with them you can also get an automatic US bank checking account.

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  • Engelo RumoraBusiness Member
    Investor · Toledo, OH · Member since 2013 · 4k+ posts · 2k+ votes
    12y

    @Michael Baradell

    Our group works with a company that lends to buy and hold investors.

    The terms are below:

    50% lend to appraised value

    10% interest per year over 30 years

    No recourse

    $2,700 loan start up fee.

    No credit check or income verification. I know of may Australian investors that have used their services. They base the criteria on the area and property itself and not so much the borrower.

    Thanks and all the best.

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  • Steve Endress
    Sheffield, IL · Member since 2012 · 85 posts · 27 votes
    12y

    @Michael Baradell be careful if you try to refinance more than four properties--fannie doesn't allow this. Unless you are using the delayed financing exception.

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  • Curt DavisBusiness Member
    Flipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
    12y

    We have conventional lenders who are doing up to 10 loans no problem and they also have programs for investors who hit 10 and want to keep going. The lenders are out there.

    Curt Davis - KAIZEN Realty538 Reviews
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  • Brie SchmidtBusiness Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
    12y

    I think the qualifying on a purchase and refinance are the same - I have done 3 purchases and 2 refi and the requirements did not change. What would be the point of getting PM/HM to start?

    Our lender will do 5-10 loans with 30% down, 720 credit and 6 months reserves on all

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  • Curt DavisBusiness Member
    Flipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
    12y

    The ideas behind private money is to minimize out of pocket expenses. Anye can find a lender to do conventional purchases. Knowing how to correctl structure little or no money out of pocket deals is not something everyone knows how to do.

    Curt Davis - KAIZEN Realty538 Reviews
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