Is HML an alternative to a cash purchase?

10 Replies

I have my eyes on a deal that would be a GREAT BRRRR/flip. However, the house doesn't qualify for conventional financing due to the rehab needed. Would you seek out HML in this case if you didn't have the available cash to buy outright? Or are there other options you'd consider first?

Hello Courtney,

Your options are private money(meaning family, friends, etc), HML, borrowing against a 401K or other retirement vehicle or can you take a HELOC out on your primary home?

@Bob Green Hi Bob, I could probably take out a HELOC and I'm considering rolling over my 401k now to a self-managed IRA. I don't have experience with HML but it seems like it's often utilized in these scenarios based on what I read here.

Would the seller consider any owner financing on it? You can also seek out a partner or JV the deal with someone @Courtney M. Other than that, like Bob said, you can do HML, private funds, or find ways to pull the money from other sources. Do you have a business line of credit by chance?

@Dan Barli No business line of credit. That's something to think about, I do have a side business and get calls all the time but have never thought about getting a LOC.
@Courtney M. I’ve used hard money a few times in similar situations. I’d recommend finding lenders who’d refinance before you go that route. I’ve been able to find lenders who don’t require seasoning periods which saves some money given the higher interest rates. If you have the ability to HELOC that’s probably a safer bet just starting out. Hope that helps, and good luck! - Mike

@Courtney M.

Lot's of great suggestions on the forum:

  • Seller carry/finance: Seller may benefit from deferral of gains
  • HELOC: if for investment, tax-deductible even post reform
  • 401(k)Loan: up to the lesser of: (a) 50k and (b) 50% of account value. This refers to a loan from the plan, if available to you. You can't, otherwise, borrow against IRA/401k - that would disqualify it.
  • Private Money; i.e., friends and family: This could be a win-win for all in a big way - they get attractive interest payments and you get your deal. If any of your friends and "non-disqualified" family members have IRA/401k accounts, they could move them to a "self-managed IRA/401k account" and lend the funds to you.
  • Hard Money: i.e., from a "professional lender" that is not a bank: Rates will be higher and less flexibility than with "private money." Hard money can be your savior, but can also be the opposite. Use with caution.
  • Self-managedIRA/401(k): Being that you've got a side business, your best option would be a Cehckbook401(k)- use it (a) to invest directly in real estate as a plan investment or (b) from which you could get a loan, as above.
  • For helpful info:
Originally posted by @Courtney M. :
I have my eyes on a deal that would be a GREAT BRRRR/flip. However, the house doesn't qualify for conventional financing due to the rehab needed.

Would you seek out HML in this case if you didn't have the available cash to buy outright? Or are there other options you'd consider first?

Can you fit the hard money costs in your budget?