How to successfully use hard money lending to build a real estate portfolio?

6 Replies

Looking for some thoughts on HML for building a RE portfolio. What are the best ways to use HML? And is it a solid option for Buy Rehab Rent Refinance strategy? Also if you have experiece doing so, a numerical step by step response will get you my vote -- Thanks BP, you rock!

@Jacob Casarez

I am still new myself, but I have been learning as much as I can so maybe I can help. With a HML I do not really see how you can Buy, Rent, Rehab, Refinance. Considering a HML has very high interest rates and is mainly used for a short period of time. I have read that you can refiance a HML but you must look into your options before doing so. If you are in a situation where you are unable to obtain a traditional loan you will run in to some major problems. Again I am still new at this so hopefully more people will chime in.

You need to look at the points, interest rate and prepayment penalties before using. If the deal is a total steal and you are unable to get a traditional loan then I would use HML. If they don't have prepayment penalties you can use them until you find a tenant and refinance with a traditional loan to lower your interest rate. Hope this helps

You can use hard money to build a portfolio, but there are limitations.  Also, since you are in Oregon, customs differ within the hard money community so I can't say what happens in MA is the same as OR.  

May I suggest you listen to BP podcast 9 first.

Then, start with a portfolio lender in your area so you can find out what their requirements are to refinance you out of the hard money.  The cart comes before the horse.  If you don't have an exit strategy out of hard money (refinancing) you can't use hard money, unless you are with a lender who is hoping you default.  If that's the case, find another lender.  

Once you know what you need to have in order to borrow the end financing, you can consult with a local hard money lender (local to you) and back into the hard money deal.  

Sort of like starting with the After Repaired Value to back into the offer you make.

@Jacob Casarez I will try to answer your questions as best I can, and they are my professional opinion - not to be taken as the end all be all !

What are the best ways to use HML?

The best ways to use HM is when you have some cash, a private lender or your own equity in a property to secure the 20-30% needed to use HM available. HM is a great way to not drop all of your funds into one property, allowing you to buy more projects and in turn increase your profits. With the market getting tighter, many investors are turning towards quantity over quality. This can be a great choice, or a massive mistake. If you are experienced and have it down to a science (Disclaimer: There will ALWAYS be unexpected bumps in the road) you can tighten up your margins/ return. If you are new, and don't have a mentor, you may want to start with one project and then another before you start acquiring multiple in a short period. The best ways to use HM are short term investments i.e. fix n flips, construction loans and bridge loans. These allow you to either sell out or re-finance when the term is up. make sure you use a lender that has no pre-pay penalty.

And is it a solid option for Buy Rehab Rent Refinance strategy? 

YES, a very solid option. First, do your homework on the re-fi options. Make sure you have studied up on this and ALWAYS have another exit strategy ready in case something falls through. Make sure your HML is aware of your intentions before funding the deals. I have heard so many horror stories of borrowers getting stuck in a deal with a HML that had bad intentions from day 1. You want to do this re-fi around 6 months to avoid more points and interest payments, so make sure your rehab can be done in time.

Hope this helps. If you have any questions or want another opinion on a deal feel free to contact me!

i give people hard money loans on non owner occupied property, and from my experience it seems to me that if my clients buy the propoerties intelligently and stick to a solid rehab plan, we allow them to make a lot of money--and purchase properties they otherwise would not have access to. We finance up to 90% here in calfornia.