I have been listening to the podcasts from Lifestyles Unlimited. Their main strategy for buy and hold is to purchase houses and fix them up with a hard money loan and then convert the loan into a conventional loan. They do this to roll the repair costs into the conventional loan. What are your thoughts on this? Seems to make sense if there is a decent amount of repairs needed on the house, otherwise, the closing costs would cancel out the benefit.
Its a workable strategy for some properties. Its expensive because of the cost of the hard money (do the LU guys have a suggested lender?) and the costs of the refi. But it may let you buy with lower out-of-pocket costs. And it may let you buy properties that won't qualify for conventional financing up front. But you will end up paying more than if you bought with a conventional loan and funded any rehab out of pocket.
I am a Mentor at Lifestyles Unlimited. Jon is correct, we use this strategy to purchase distressed property that will not qualify for conventional financing. This is just one of many strategies used depending on the nature of the deal. When you do a side by side comparison of the same deal that needs rehab you will see that when you use hard money, even with the additional costs, your cash out of pocket is less and your cash-on-cash return is higher. It is a method that helps you leverage the investment funds that you have. Hope this helps!!
@Jon Holdman Lifestyles does have several hard money lenders (and conventional/private money lenders) that work with their members and that attend their networking events.
@Brad T. I am a Lifestyles Member and a CPA/Atty. I have purchased three properties largely because of being motivated by the Lifestyles 2 day training class, but I have used conventional financing. However, I am realizing that my limiting factor is cash, and you do have a significantly lower cash out of pocket by going the hard money route. So, I may use hard money for our next purchase. Their system does work, but you have to find the right property. Fortunately, they walk you through how to find the right property on MLS in each of their 2 day seminars. My target market has been highly competitive and it has been difficult to find the right properties for hard money in exactly the neighborhoods that I want. But, I only have to go less than a mile away, and I could find several.
Thanks for your replies @Jon Holdman Lynn Murrow !!!
I will definitely keep the hard money to conventional option as a tool for houses that need a lot of work and/or would not qualify for conventional financing up front.
By the way, Lifestyles Unlimited seems like a great group and I wish there was an office in my area. Do you think the online option is worthwhile? I would be missing out on all of the local knowledge, contractors, lenders, etc.
I am familiar with Lifestyles, went to their 2 day class, and it was very informative. The HML to Conventional route presents an opportunity for more investing with the limited cash we have on hand, something I am sure all investors struggle with.
I am not sure I'd recommend the online option, since the list of contractors/lenders has been the biggest help for me. You call somebody on their list, and they basically understand from the first day what you are planning on doing with the property (because they've gotten several other referrals from the same group). So there is less question on which type of materials to use, etc.
We have vendors across the nation and someone to help you find the local help you need. Her name is Natalie Pilkinton and you can reach her at [email protected] she can give you the information you need. The online program is growing every day!
Lynn Murrow Does the online course have the two day seminar with Del recorded?
@deidra Hubenak yes the Financial Freedom Program Membership has an online version of Del's 2-day seminar and monthly streaming video of the Houston Case Study. We are working on additional offerings as well, but nothing I can share at the moment...
Check around at local banks. Many in the Dallas area have something that is in the middle-of-the-road for hardmoney. On my last one I got one point and 7 1/2% interest. They have been more conservative on what they will loan for.
That option worked out a lot better for converting it to conventional.
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This method of leveraging one's purchasing power is so powerful! Del lays it out perfectly in the online 2-day seminar.
It seems counterintuitive to incur those extra closing costs, pay higher interest (albeit for only a month or two), and receive a lower cash flow per month. That is, until you understand that the cash-flow:cash out-of-pocket ratio has increased -- often doubled -- freeing more of your cash to purchase additional properties.
It's a valuable strategy, and it's one that my wife and I have already employed once and are looking to use again soon.
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