Be my own hard money lender?

Question

Hello, friends!

I am interested in buying homes wholesale, but I want to do a conventional mortgage. Since purchasing wholesale is nearly impossible with a conventional mortgage, I need to pay for the property up front (via a hard money lender), then refinance as a conventional mortgage. The question I have is, can I be my own bank/hard money lender? For example:

Super Awesome, LLC is a hypothetical entity I own with some cash in it’s bank account.

I find a home for 100k and issue myself a loan (from Super Awesome LLC) to buy the property. I am the buyer, Super Awesome LLC is the lender.

Once the property is mine, I want to refinance with a conventional loan. The bank can pay back Super Awesome, LLC the loan and restart the cycle for property # 2.

The ultimate purpose is that I want to recycle the money that is in Super Awesome, LLC to keep buying home at wholesale price + refinance with a conventional mortgage.

Is this possible/legal?

Thanks!

Mohamad

Russ Draper · Answer

Well Super Awesome, LLC has no history, I am unsure if the bank would give a loan to it. Or are you saying give a loan to yourself? They might treat it as another sale. I think the hassle of "taking from one pocket and putting in the other" wouldn't be worth it.

I don't see why you even would need to do this, why can't you buy properties wholesale without?

Account Closed · Answer

Yes, you can absolutely refinance a property if you own it outright! Most banks will only allow you to refinance 75% of the appraised value of the property, though. So, if you want to pull out the whole 100K, you'll have to make sure that your purchase price (and any rehab you do) will build in about 35K of equity into the property so that 75%= 100K. This strategy is what people call BRRRR here on BP (buy, rehab, rent, refinance, repeat). It's a great way to build up a portfolio by recycling one's money- IF you buy the properties right and find a bank that's willing to refinance quickly (the norm is a 6-month to 1-year wait called "seasoning").

Note that you would need to personally qualify for the mortgage when refinancing (income, debt ratio, credit requirements).

Good luck!

Charles Worth · Answer

@Mohamad Suleiman

If I understood you correctly you want someone to provide leverage for your Super Awsome LLC to lend you money to buy the houses, am I right? Otherwise as noted unless there is a tax reason for doing this I don't see the point.

As for lending the LLC money, I don't think banks or other capital sources are going to bite when you own the property itself and the LLC. In that case why not just lend to you as the property owner, its much cleaner? I think you are assuming the bank is not going to look very hard at the transactions themselves but I think unless you have an amazing track record they prob would.

Mark Holencik · Answer

I am in an LLC with a partner. He is providing the money.

We buy a home and he provides a mortgage to the LLC for buying the home and the improvements. The LLC will give him 2% over a bank's rate.

We then rent the home out. When we use all his available money, we will refinance in order keep moving forward.

This will give us time to show the property has curb appeal and a rental history. You may not be able to grow as fast in the beginning, but it will work.

Jay Hinrichs · Answer

make sure your approved on the refi before you count on this model to work.. you may get stuck with all your eggs in one basket.

Russ Draper · Answer

Your strategy for using the money is one of the reasons for investing in RE, I still don't see why you need to have the LLC be the lender instead of just the owner for the property.

The bank is going to ask for the records of the LLC, and see that it is just owned by you.  Since the LLC has no history, they will want the loan in your name.  You'll still pay taxes the same, as a pass-through entity (I believe).

I think you are going to have to get the loans in your name, then you will have to quitclaim the properties into the LLC's after purchase like everyone else does.  You can still have up to 4 mortgages in your name before worrying about the LLC having to get mortgages.

​Be my own hard money lender?

Most Popular Reply

Be my own hard money lender?