Not so hard, hard money

19 Replies

We are about 90% complete rebuilding our first rental property after a total loss house fire.  I shoe stringed the rebuild to this point - which will now be our primary residence.  (It is a waterfront home so I had to tear down and elevate due to fema regs)

We owe $182k on the original property and when complete will conservatively appraise at $700k...  ($750k if market holds)

Our plan was to get the house to CO, then HELOC to finish the other guest bathroom, Trim, do backsplashes and other "unnecessary" finishes.

Due to covid  my banker told me things have tightened up so they won’t loan on a house that’s not 100% complete.

Looks like my only option now is utilize hard money to Finish the house to 100% completion.  I’m ok with high interest and offering protection to the lender - however they are wanting to pay off 1st mortgage and loan me $280k...  (180 to pay off first and 100k to finish)

I’m looking for other options rather than convert my entire loan to high interest (less regulated) hard money.

Are there hard money lenders that will do 2nd mortgages?  

If so I'll use the money to get to 100% completion - then HELOC and pay back hard money.

I'll have cash early 2021 to pay off HELOC and get back in a good equity position - which I then can leverage for properties 2 through 102!

Thanks in advance!

In my experience hard money lenders insist on being in first position, I have never seen a hard money lender do anything any different.  

I've probably talked to 20 - but I'll continue to dig. My issue is I've been using credit cards to buY materials so my score dropped from 805 to 650 (temporarily)... And the banker said a repaid rescore isn't possible for a HELOC - Only a refi

I’m trying to avoid a refi - don’t want to be locked into a $280k mortgage payment...  

I get paid again (government contracts) in December/ January so I'll be able to payoff HELOC then. Sure I could pay down the refi mortgage but that won't lower my payment... only lower my balance... yes I could refi again but that would cost even more!

My other option is to just wait - and finish December/ January...  but the rent I’m paying will equal the hard money costs. 


If the house is down to the little things like trim and molding and paint and such, why not just do it yourself? Trim for an entire house is not much money, and its easy. So is backsplash.

Just get it 100% "done" to get the CO and a completion. Then you could always adjust the place later.


@Matt Nico I’ve actually built this whole house myself.  Framing / windows / roof / railings / cabinets.... subbed out plumbing / electric / drywall 

I fully intend on doing the rest - just lacking funds.  As mentioned I can finish as cash comes in - but it may make sense to borrow that cash and knock the rest out in 60 days... (I’ll have to swallow my pride and hire help).

I still have flooring / bathroom tile / trim and doors / paint / finish plumbing / Driveways / landscaping... 

My options are to nickel and dime the job until January when more funds come in...  (which I’m ok with, except I’m paying rent)

or borrow some money that makes sense and knock it out / get moved in. 

Hoping to find a hard money lender that will work with my situation - which isn’t typical.  Due to the amount of equity in the home their risk is low / non-existent.

I have a couple of offers - but so far Don’t make sense.  Especially considering the closing costs and points involved To close

Without numbers, it’s hard to say, but given what you’ve said, I’d push to get it done to avoid paying rent. Again, I don’t know the numbers, but that would be my goal. So, yes, I would look at HM to get it done. What have you been offered at this point?

@Lisa Eckman  

I owe $182k on the original mortgage...  conservative value at $750k when complete - (3200 sqft waterfront home)

Need $100k to finish properly - I’ve put in $350,000 of my cash

I’ve been offered $280k to pay off first and provide the cash to complete - at 12% and 3% closing cost.  I understand the lenders position - but I’m not sure that makes sense for me.  I’m ok with the interest - just not on $280k - especially with nearly $10,000 in closing costs / fees

As mentioned- I'd like to secure $100k for 6 months max - to be paid back with HELOC after completion. I can be ready for appraisal in 90 days tops

@Joe Young

I'm a private money lender in WA and we do 2nds all the time but we don't lend outside our state. I would recommend trying to find a local private money lender - perhaps one that uses their self directed IRA (SD IRA) to lend out - that will work with you in 2nd position for a higher interest rate. They do exist and many will do gap funding (combined LTV up to 100%) but you have to seek them out. Another option depending on how much funding you need and if you have one or can create one, would be to lend to yourself out of your own SD IRA. There are rules and regulations to doing this but many investors use this option often. You can borrow 50% of the value or up to 50k from your SD IRA, from what I understand. Don't quote me on that figure though, I'm not one who does this since I lend my SD IRA funds to other investors and not myself.

@Beth Johnson ,

Use of your SD IRA to lend funds to finance this project would be a prohibited transaction.

As noted by other commentators, you could get a loan from the SD IRA of an "unrelated" lender - (see SD IRA rules), but you can't finance a project that you would personally benefit from using your own SD IRA.

I will continue to look for a lender willing to do 2nd.  A lot of the websites I go on disqualify you immediately if there is homestead on the property.  Maybe I need to network and find a person not a company.  Or just wait... and find the deal myself. 

You can still get helocs I had a client close one last week. Call around your local area all the credit unions. Another option SoFi its a personal loan at 6-7% need good credit.

@Mark Welch - The hard money offers I'm getting are at 12% - Which I actually think is fair!  Obviously convetional financing is cheaper money, but this isn't a conventional situation.

@Ian Walsh - I understand a lender wanting 1st position in certain situations - Just suprised some HML refuse to do 2nds - especially with a deal holding more than enough equity to protect the lenders - even in as in condition.

@Joe Young the difference I see between hard money lenders and private money lenders are hard money lenders are professional lenders and lending money is part of their job or is their job. A lot of times they lend money out of investor funds so they have rules and guidelines that they lend by that the people in their funds know, understand, and accept. The investors in their funds have probably not accepted being in a second position. It isn’t a personal thing and it has nothing to do with the home, it’s current value or even future value.

A private money lender, on the other hand, had money to lend but doesn’t do it professionally. It is their own money and therefore they have all the say in how they want to lend it. I work with private money lenders in second position all the time. I’ve raised well over a million dollars in private money in second position and I usually pay 8% - 10% on their money. But I also offer them an educational aspect so they can learn while lending me their money. I have a WhatsApp group where I post pictures and videos and do mini trainings where people can see and be a part of the purchase, rehab, and leasing the property out using the BRRRLO strategy. So they get to learn while they earn. Adding an educational piece to your rehab may entice a private money lender to come on board. Granted, most of my private money lenders have only lent 10k - 40k on a deal but I have had several that have lent 80k to 130k on a deal. And the great thing about a private money lender is there are no points or closing fees other than recording the deed of trust.

You may consider posting on your social media accounts or on the BP market place that you are looking for a private money lender to come in with $150k (to finish the rehab and to help pay off the credit cards to help your score go back up for the refinance). Say you’ll pay 12% and share with them your rehabbing contacts and show them how to start investing (of course it helps and you sound more credible if you have done several deals).

Good luck.

@Shiloh Lundahl Thanks for the post!  I’ve actually had several informal private money offers from this post.  I’m currently putting together a “packet” including photos, remaining scope of work and comps to show a conservative value.

I’ll see how these offers go and if need be move into the marketplace!  Thanks again!

Lots of good points here, but the one thing I am seeing that is missing is that you intend to occupy the property once it's complete. A hard money lender won't be able to lend on primary residence. Even if you don't currently occupy the property, if the intention is to use their funds for what will be your primary residence they're technically not allowed to lend on it. 

@Kyle Altenau This is why it's suggested I go private money... however hard money is allowed in my state - but with added steps. I'd have to give up homestead and temporarily put the home under an LLC. Basically sell the house to the myself with their money, and buy it back with the refi. Something I'm not comfortable doing.

With a deal this “easy” I’m hoping to work a deal with a private lender.  

@Joe Young it's not a matter if hard money is allowed in your state or not. It's the fact that this isn't an investment purpose loan, so technically you're only supposed to go to licensed lenders for it. It doesn't matter if it's a hard money lender or private, and doesn't matter if you own it in an LLC or not. That's at least how we were always guided on by our attorney when underwriting hard money loans in the past. It's the purpose of the loan, which in this case is not investment purposes, which is the part that matters most.

Most lenders will have you sign an affidavit of non occupancy as part of the loan documents as well, so again it wouldn't matter if you owned it in your name or LLC.

But I think you're right in that a private money lender will be more lax with the ownership situation. I think they'd want you to transfer it to an LLC though.

Looks like a great property. Good luck!