Its time to move out... From the In Law's spare room! Hard Money?

Question

My wife and I sold our first home over a year ago. It was a 5 year rennovation that eventually eliminated every debt we had. I actually wrote an article about this journey titled. "My first flip paid off my student loans"
https://www.biggerpockets.com/forums/223/topics/706157-my-first-flip-paid-off-my-student-loans

After selling, we decided to put the remaining money in savings and move in with the In Law's. Well that time is up. We have out stayed our welcome but we were able to save quite a bit of money in that time.

We currently are negotiating with an out of state investor that has a home that needs a fair bit of work.

Here is my question. We have cash to cover the purchase price and closing but thats about it. I know I can get hard money for the renovations. In its current form, it would not qualify for conventional lending.

I have a hard money lender that I worked with on my first deal but im curious if going through a hard-money lender needs to be disclosed on the offer. I see all of these "buy homes with other peoples money" articles all the time. They claim to buy your house with cash but its not theirs, do they disclose this? Im in ohio if that matters.

My concern is using all of our nest egg at once. I want to use leverage and have at least half of our money for emergencies.

If I go the hard money route, would I work with my guy, get the money and it show proof of funds in my account for my "Cash offer" to my Realtor?

Joe Norman · Answer

You shouldn't need to disclose the source of your funds out right, but if asked I would be honest about it. The Maryland Realtors Contract of Sale specifically has a clause that says that buyer can use any types of Alternative Financing he chooses, even if its not disclosed in the original contract.

Joshua Herald · Answer

We ended up finding temporary living arrangements during the rehab. After things are fixed up we plan to refi and get a tradtional or FHA loan to buy out the hard money lender.

What exactly is a Carryback?

Steve Morris · Answer

Well, I broker apartments.  About half of my deals representing sellers I will ask for proof of funds.

Since financing is what takes the longest, I'd like to know that the buyer has 30% down (70% LTV) and can get financing up front.

Hard money is just tough to make a deal work and you're on a knife's edge (i.e. every day it taks to pay back costs a lot, so delays can kill you).  Have you asked if seller would do a carryback?

Jean H. · Answer

@Joshua Herald what about an FHA loan with a 203(k) option (where they give you money for the rehab as well)?

Lydia S. · Answer

@Joshua Herald

Your plan is for another live-in flip?  What about rehab loans as an option?

John Teachout · Answer

Are you eligible for an FHA loan or some other owner/occupied loan type?

John Teachout · Answer

Is this a property you would move into?

If so, I would try to complete the purchase and then fix it up out of pocket. Sounds like you're good at frugal living and could probably pull it off.

Joshua Herald · Answer

@Sam Martin

Everything was lining up until I mentioned living in the property.. they are not licensed to lend to owner occupied.

What options do I have here?Form an LLC and buy it though the LLC? Then have a lease option to ourselves? Then refi later?

Sam Martin · Answer

If you have cash to pay for the purchase price and closing costs.... then you could just purchase it and then use your hard money guy to cash-out refinance after you take the property down. This will allow the lender to give you the rehab budget, and finance back in the acquisition cost. So in other words an LTC loan. We do this all the time. Most Hard Money Lenders understand that taking a property down with cash, to move faster can help out and then lining up your financing on the back end. We would look at it as the same as you taking our money to purchase the property, and then rehab portion of the budget would be rolled in. So in other words, you will be good to go if you purchase the property first with your cash. Just ask your guy how he operates! Like I said, this is a very common occurrence. You will be good either way my friend!

Joshua Herald · Answer

Thanks everyone. I appreciate it. I have an investor friend who said they just put a line in the contract that says something related like "if the buyer cant pay for everything cash, they have the option to use a lender" obviously more legalese than that but you get the idea

Its time to move out... From the In Law's spare room! Hard Money?

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