Hard money loans and seller occupied houses

4 Replies

I have a pretty good prospect on My 1st fixed and flip house after putting up some bandit times around my area and was able to find a house valued around 200 K and asking prices around 120 K With about 15K work as far as I can tell. Now he asked me a pretty interesting question that I didn't really know about, and he wanted know if it would be possible to live in the house after I purchased from him for a short time until they find their own house to live in using the funds I've given them for the deed. I Will be financing this property the normal way using a hard money loan. Am I right to assume that a hard money lender would not approve of this And is it true that a hard money lender only lend if the house is vacant? It is easy to anticipate that quite a few things go wrong in this scenario, like they could take a very long time to find a house to live in, Even months, and things could get really ugly if I would be forced to evict them which could take who knows how long.

Is it unheard of to put into a contract saying that the seller has 2 weeks to move out of the house after the sale and The deed is transferred over Using a hard money loan?

I believe you are talking about the lease back option - situation where seller is seeking to occupy the property after closing. I personally don't see why a hard money lender will be opposed to that idea. However, it would not hurt to pick up the phone, give them a call .

If your numbers check out ,  I (putting my legs in the lender shoes) will gladly jump on the deal. Do not hesitate to reach out to multiple lenders if you have a deal in your hands.

@Tommy Adeoye makes some good points. Attractive numbers are important of course. But the main thing here is that it's your first flip and is already a little bit more complex/complicated than your traditional flip. There are a lot of variables and unknown here. Forget whether a hard money lender would fund you or not, as an investor I would be worried. This is a strange time with the virus and some markets have experienced major booms. I wouldn't want to be in a position where you can complete rehab/reno work because they're still living there. A hard money lender will still expect their monthly interest payment and when the term of the loan matures/expires in 6 or 12 months, you'll need to pay the principal back or risk being in default, which 1) will add a ton of fees/default interest and 2) may trigger a foreclosure proceeding. The other alternative is at maturity you extend but then have to pay an extension fee of 1% - 3%.

As a lender, I don't love this scenario. Lenders are not in the business of foreclosing and taking back properties. They are in the business of making good loans that pay off on time. 

I agree. I would simply ask them to use the funds I've given them and live out of a hotel for a month. I would even offer them $1000 out of my own pocket. I am pretty confident of a few hard money lenders lined up, and I also mentioned this would be my 1st flip, and they said the numbers work they are all game. I was also planning on utilising private money for the down payment for the hard money loan common which is usually about 10%. If this is possible , I will pursue it , but, at my also be tricky finding someone to lend for the down payment since it is also my 1st investment and I understand usually they prefer to work with investors who had a sum flips under the belt already. I will see how this goes. Thanks guys!

Hi @Tim Ivory

I´ve bought a few houses where an agreement was signed allowing the seller to stay for up to 2-3 weeks post sale. It´s important to verify that they are actually getting organised to move. Make sure that the 2 week right to occupy is in the purchase agreement and even if it is only 7-14 days, additionally get them to sign a lease with a nominal rental payment.