Wishful Thinking or Possible? HML question.

11 Replies

Hi BP, I just have a question regarding using hard money lending.

So I'm hoping I could utilize HML for BRRRR, but my situation is that my wife and I don't have a huge cash on hand but we do have access to credit card up to $40k with credit scores of +770. Financially speaking, in income vs expenses, we can save only a couple of hundreds or less every month. I'm the only one who works at the moment but my wife can get a job and have an extra $2k/mo and I can take an extra shift/week that can get at least $1k if need be. My point on this is that we have plenty of cushion to carry loans.

My plan is to get a property under contract way below the ARV-repairs and have it financed by HML and either pay interest only monthly or preferably pay all of it at 6 or 12 months after rehab/rent/refinance. I'm willing and motivated to do the rehab myself. We're looking at

Is it possible to get funded with our situation? Is this within the realm of possibility or just wishful thinking? If it's not a possibility yet, what would you suggest I do to improve our situation?


James, where are you investing? Maybe you can partner up with someone with capital? Like a family member or friends. Do you have a 401k? Maybe if you have enough you can use that as downpayment.

@James Amon , You may want to look into a PML that will carry the loan with a 1-2yr term. HML are great for very short periods because the interest rates being higher than other avenues. It sounds like your ratios are high so unless something changes it would be as hard to refi the property into a conventional loan as it would to get one for the original purchase. Giving yourself more time will help with the lenders seasoning requirement and for the incoming rent to claimed on your taxes i.e reducing your ratios. I have a great PML in your area just let me know if you want a referral.

@James Amon Check as well that the HML will allow you to do the rehab yourself. A lot of times they may require a licensed GC. At a minimum, electrical and plumbing generally has to be completed by licensed contractors, so factor that into your budget.

- Tom

If you are looking at investing in Southern California with a hard money loan that is probably wishful thinking, because the interest rate and prices are just too high.  Not sure about other states, but even there hard money loans are not ideal for rentals.

This strategy can work.  But the key is to finding an acceptable property.  Doing the hard money, rehab, refi route is expensive, if you're trying to get all the cash you've put in out on the refi.  Your refi amount includes not only all the money you borrowed up front but also all the points, interest and other charges.  And then your rent has to cash flow with that new payment.  Finding a deal that lets you do this approach with none of your own cash into the deal once you refi is really, really tough.

Also watch out for running up those credit cards.  Credit card utilization (balance/credit limit) is a factor in your credit score.  Run your credit card utilization up and it will hurt your credit score, making refinancing more difficult and expensive.

Your best bet is private money: friends, family, co-workers, etc. Most HML guys are pretty expensive and want short term loans. Unless you want to flip, they aren't going to work. If you want to BRRRR-you need better rates and longer terms. Ask your rich aunt or uncle, etc...they can be a great source of inexpensive capital.

@Doran Summers I'm planning on doing it in Las Vegas. Unfortunately, I don't have rich family members. Plus I know some will disagree but I'd like to keep friends&families separate from business so that if things doesn't work out, I'd still get to keep our relationship. Once I get the hang of this investing venture then maybe I'll involve them with the success. With the 401k, I just recently started putting some in it so there isn't much over there. I do have quite a significant amount of equity in my primary house but its tied up with equity sharing with the city I'm in due to "first time home buyer program." If I can pull it out without incurring significant loss, then financing wouldn't be too difficult.

@Robert Rayford yeah, my d/i ratio is a little high than I'd like it to be but I can compensate for it with extra shifts. I've read about that whole seasoning period, 6-12months I believe? I'll definitely look into into PLM. I'm in contact with a couple of lender right now and if things doesn't work out then I'll send you a pm. Thanks for the advice.

@Tom S. Great advice! Thanks. I think that would have been a big ticket item if I didn't know coming in.

@Aaron Klatt SoCal is definitely not my target at the moment. You're right, its pretty expensive here at the moment. I'm thinking of using HML only during acquisition and repair then refinance it.

@Jon Holdman Thank you for the advice. I thought about that whole thing too regarding the card utilization affecting my credit score and eventually hurting my chance on refi. I guess I would need a property that is way below the ARV and lots of buffer for it to work.

It sounds possible .  It will depend on your local lenders, the deal, the criteria the lender looks at etc.  In our market you would be able to find a deal with that setup that could get you into something that makes sense.  Every region is different.

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