Using hard money on 1st rental (BRRRR) deal

[Miles Stanley]

Is this recommended? My thought is that if i understand what I'm getting into and I'm sure i can pay off the HML with a refi, sale, etc i should be set...unless the wisdom of the forums can show me otherwise!

I'm certain i can qualify for a conventional mortgage, but i seriously doubt they will lend against a distressed property.  I spoke to a loan officer at a portfolio lender bank in my area and everything sounded on the up-and-up at first, but when i followed up with him a couple weeks later, he told me that "we are holding back on these types of loans right now due to too much concentration" or something.  Didn't come off as a reliable source to me (i would hate to get a deal in line only to find out that the bank i thought was behind me has suddenly changed their mind).

So its looking like private lending sources (HML) might be my only option since i don't want to pay all cash either.

Any thoughts??

Thanks,

[Patricia Vildozo]

Following

[Ryan Walley]

Assuming you don't have this under contract yet, correct? If it's an MLS listing, a renovation loan isn't looked at as a strong offer typically if there's others offers with more down or all cash.

Some banks will finance a reno, but it's tooth and nail to get them to do it.  I haven't had any luck, but many people will say they have.

Lastly, I bought my first two deals (buy and hold) via traditional financing so I haven't done a HML, and I only put minor repairs in cause I'm not handy. If you are, and you are confident in the "Renovate" portion then a HML is probably a good idea. It's risky and I would usually suggest a first time investor use a traditional loan with better terms, or save the cash and invest it into the project when you can afford it.

[Tom S.]

@Miles Stanley I think you're on the right track with getting bank financing (not HML) on a distressed property - you just have to keep calling around. Try small local banks and talk to the commercial lending department. Almost all of my loans have been purchase + rehab financing, all in one closing and then draws for the work after inspections. Much cheaper, just the closing costs and usually 4 - 5.5% on the interest rate (for me at least, as they're investment properties).

Good luck!

- Tom

[Miles Stanley]

@Tom S. - what type or term and closing period are you getting for this loan?  I am worried having a long closing window (1-2 months) could jeopardize a deal...no?

@Ryan Walley - i don't have a deal lined up specifically, just speaking in generalities. Don't get me wrong, i would really prefer to not use HML to start...its just another facet that i would be uncomfortable with in getting started. Once i get comfortable with my REI process, then i would consider HML to grow, etc.

General question:  If you use conventional financing to purchase and rehab the property, is it then really necessary to REFI out to another conventional loan?  would you really be getting your money back to repay the process?  I guess if the spread between rehab+purchase+closing < 70%xARV was great enough, then theoretically yes...right?

[Tom S.]

@Miles Stanley  With the small local banks it generally a quick closing, 3-4 weeks tops.  They meet as a loan committee after the paperwork was submitted and it was just a yes or no.  The paperwork is fairly standard as a big bank loan: tax returns, bank statements, paystubs etc, but the turn around time was much quicker.

Because it's commercial loan, 20 year amortization, resetting every 5 years.  One just reset recently and the rate increased 0.25 %.

Your general question: theoretically yes, as long as you're getting a great deal, you should be able to pull out money after the rehab.

- Tom

[Nathan Click]

@Miles Stanley - I'd be happy to help you put together financing for this deal. You may be able to get about 75% or 80% LTV depending on your plan. Fee free to reach out to me.

[John Broussard]

Depending on your credit profile there is hardmoney  and not so hardmoney out here. Hard money can range from 8.99% to 15%, the single digits loans are based more on experience and credit. 11% and higher are more asset based hardmoney loans. Hardmoney solves financial solutions and is a great source for alternative financing. It has open the doors for countless investors to enter this arena. Just remember to allways do your due diligence on the properties, get inspections, know your bottom line cost, carring cost and find a good contractor.

[Brent Coombs]

@Miles Stanley, you asked: "General question: If you use conventional financing to purchase and rehab the property, is it then really necessary to REFI out to another conventional loan? would you really be getting your money back to repay the process? I guess if the spread between rehab+purchase+closing < 70%xARVwas great enough, then theoretically yes...right?"

Exactly! The whole idea of BRRRR is that when you Refi, you get back ALL of your original cash, even though your Lender only lends say 70% of their appraisal.

This means that it must appraise for at  least 143% of what you have paid (including borrowings).

ie. 143% / 70% = 100% of your own cash back, and you gained 43(+)% equity! Cheers...

[Brent Coombs]

And once you've got ALL your cash back, you must perform the 4th R (= REPEAT), otherwise it's not a BRRRR strategy!

And once you've got all your cash back AGAIN, you must keep performing the 4th R .......

[John Broussard]

We are offering a Fix / Rehab / Rent product, hard money is used to acquire the property and rehab it. Once rehab is complete we roll that  loan  into a 30yr fixed program