Rental Property Investor · Wayne, NJ · Member since 2015 · 26 posts · 3 votes
Hello,
I will be investing in multi families in northern New Jersey and predominantly buying and holding. I will be doing my first few deals through hard money and plan on doing the BRRR strategy.
I already have an FHA loan and funds/reserves are not high enough that I would want to risk throwing so much into a conventional. Hard money looks like my only option.
Any crazy/hidden fees or agreements I should be aware of.
What are points and what do they mean in dollars$?
How much more is it really to go hard money vs conventional, talking small money loans (100-250k)?
What happens when I go to refinance anything problematic or over complicated to be aware of?
Lender · Las Vegas, NV · Member since 2015 · 2k+ posts · 1k+ votes
10y
1 Point is equal to 1%...of the loan amount. So if the lender is charging 2 pts. And you are borrowing 100,000...that equates to $2000 being charged for making the loan to you. There is normally a lender fee also charged to cover their processing, doc prep and funding costs. You will have other 3rd party costs for title and escrow services and possibly appraisal costs if the lender requires an appraisal. Nothing magical or scary about hard money. Costs a little more for a great deal less headache and a much faster closing process. Vett your chosen lender and because you are dealing with a direct lender and not a broker and yiu should be good. Refinancing is no different than any other loan...just make sure your term of your hard money loan is long enough to accommodate your exit from it.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
10y
A "point" is 1% of the loan amount. Typical hard money loans have 3-6 points. That means if you borrow, for example, $100K, you would only actually get $96-97K. You would pay interest on $100K and have to repay $100K. There are likely to also be underwriting and appraisal charges.
If you can't refinance, the HML is going to take the house. Period. Maybe you can get an extension for a few months for a fee. But they're not going to do loan modifications or "workouts" or that sort of thing.
You may have to kick in cash when you refinance. Typical LTVs on rental property refinances are 75-80%. And you will have to have reserves and the other requirements for getting the refinance loan.
You're only going to pull this off with little cash in to the deal if you have a very flexible HML AND a screaming deal. You may be may be able to use this strategy to get into rental with less cash than 20% down + rehab + cash reserves. But its unlikely you'll do this for none of your own cash into the deal.
Lender · Las Vegas, NV · Member since 2015 · 2k+ posts · 1k+ votes
10y
1 Point is equal to 1%...of the loan amount. So if the lender is charging 2 pts. And you are borrowing 100,000...that equates to $2000 being charged for making the loan to you. There is normally a lender fee also charged to cover their processing, doc prep and funding costs. You will have other 3rd party costs for title and escrow services and possibly appraisal costs if the lender requires an appraisal. Nothing magical or scary about hard money. Costs a little more for a great deal less headache and a much faster closing process. Vett your chosen lender and because you are dealing with a direct lender and not a broker and yiu should be good. Refinancing is no different than any other loan...just make sure your term of your hard money loan is long enough to accommodate your exit from it.
Rental Property Investor · Chicago, IL · Member since 2015 · 31 posts · 10 votes
10y
Thanks Jon & Charlie for your advice on this topic. I am on the same route as Jasmine, working to put together deal with a HML in L.A and/or Kansas City, MO.
Investor · Middletown, NJ · Member since 2014 · 19 posts · 6 votes
10y
Hello Jasmine,
I'm also a resident of NJ and I perform my first deal this year in PA with a loan from a HML using the same strategy. The HML loan purchased the property and I utilized my money to close the loan and renovate the property. It was my first deal so I went for a property with minor repairs and was able to get the home renovated within two months and rented. When dealing with a HML you have to be very proactive. Before renovations is completed, you have to list the apartment and the moment you sign a lease you have to start the refinance process. Depanding on the terms of your loan, you have to go through you entire strategy within that term. It's a great strategy, I love it and by using this stretegy you could get deals off the market quickly.
Rental Property Investor · Wayne, NJ · Member since 2015 · 26 posts · 3 votes
10y
Hey Yonelle,
Thanks for the feedback, how did the refi go? Did u need money down and did they want to see a lot of reserves in your bank to qualify?
Also did you start the process of prequalifing for the refi prior to applying for the HML?
Rental Property Investor · Chicago, IL · Member since 2015 · 31 posts · 10 votes
10y
Hi Yonelle. Congratulations on pulling that deal off. Just a quick question, how far off (timewise) did you and your hard money lender put your refinancing exit at? 2 years or less?