Does using a Hard Money Loan create Cash Out Refi Issues?

7 Replies

I've just completed the renovation on my 4th BRRRR Property and we placed a tenant in the property last week - it is my 6th property.

The issue I have is that I only have enough capital to do one deal at a time. One reason I have avoided Hard Money is that when refinancing my property to pull my cash out and go the next one, my lender has always asked for verification of funds used to purchase the home originally. Will using Hard Money cause any issues there? Does anyone have experience with this when not waiting the 6 month seasoning period?

Thank you in advance!

Austin Jones

If you have (6) cash flowing properties you can always cross collateralize the properties and not use hard money.  Seasoning is a bank overlay.  Not all banks have that rule when it comes to portfolio or commercial loans.  Banks actually would rather do these loans because there is more skin in the game.

Our landlord clients use us specifically as a Bridge type loan to allow them to purchase, renovate, and stabilize a property before they get bank financing. It has been working great. I don't know why a bank would care, because they are getting the loan AFTER the risky part of the transaction is over.

Originally posted by @Jason Wray :

If you have (6) cash flowing properties you can always cross collateralize the properties and not use hard money.  Seasoning is a bank overlay.  Not all banks have that rule when it comes to portfolio or commercial loans.  Banks actually would rather do these loans because there is more skin in the game.

Jason, 

Could you explain more on what "Cross Collateralize" is referring to?  


I haven't had the issue with the 6 month seasoning requirement as I usually group my renovation costs in with the initial purchase price in my closing and add that money to the escrow account. That allows me to cash out refinance up to 75% LTV (using newly appraised value) as long as it doesn't go over the initial amount spent on the purchase (including renovation budget) shown on the closing documents no seasoning required.

My apologies if I completely misinterpreted what you have said.  I am just getting my feet wet with commercial loans and anything other than conventional financing. 

 

Originally posted by @Derek Dombeck :

Our landlord clients use us specifically as a Bridge type loan to allow them to purchase, renovate, and stabilize a property before they get bank financing. It has been working great. I don't know why a bank would care, because they are getting the loan AFTER the risky part of the transaction is over.

Derek,

These are loans you supply to a client during the renovation process? At the current point in time, I have been saving up enough cash for the purchase and the renovation to allow me to purchase distressed properties that a standard lender may not approve.  At what point would I be able to obtain your "bridge" loan?

What everyone is saying about the bank not caring about where the initial purchase money came from makes sense, I just need to clarify that with my lender. 


 

Originally posted by @Michael Noto :

We have done several BRRRR deals using hard money on the purchase/rehab end and have never had a problem refinancing.

 Michael, 

Who do you use for processing your cash-out refinances?  A local bank or one of the bigger nationwide investor specific lenders? 

@Austin Jones, our loans are typically for purchase and rehab and are for a 6 month term.  If you didn't want to use all of your cash for the initial purchase, you cod use this bridge loan until you have the project rehabbed and rented out. Then go to your bank and get long term financing.