Can you use hard money loans to buy foreclosures

21 Replies

Hello everyone, I'm a fresh newbie to real estate investing. I'm located in Austin TX and looking to invest in the metropolitan areas because I keep seeing location, location, location. Anyways, this is my first post and I'm scrolling on a wholesale website where foreclosures and motivated sellers are choices. I wanted to know if you can use a hard money lender to buy a foreclosure that needs minimal to no rehab?

@Donovan Curry

Sure! But why would you do that if it needs no rehab?

Hard money loans are not for long term holding property. Most of them are 6 month loans with points paid for extensions. You can use hard money if you need to close really quick and then do permanent financing starting right after closing. That can work fine.

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@Donovan Curry If you're looking to buy and flip, you're going to lose money buying home with HML that doesn't need rehab. If you bought it at $100k, you're easily going to pay $3k in points and $4k in closing costs to buy, and then to resell could be another $6-8k. So ultimately losing $15k + in that transaction.

The value comes from buying and rehabbing, and forcing appreciation.

Hope that helps!

Originally posted by @Donovan Curry:

@Tom S. This definitely helps. I spoke with a few lenders today and talked through some of the other expenses.

Basically getting a distressed house thats ARV is high compared to purchase price is where you should start?

correct..  also be very careful of advanced fee schemes that are rampant on the internet and here on BP you may get a PM  

hey howzit  you looking for a loan then back and forth then your approved magically all U need is to send them 500 to 1500 bucks to do the docs and the money has to be in gift cards or some silly thing like that..  LOL  

Visio is a local lender in TX  lendinghome lends in texas  lima one probably does those are for real lenders. 

Originally posted by @Donovan Curry:

@Jay Hinrichs Thanks for the heads up. I’m on myhousedeals.com and I read to never pay for any (fee’s) upfront.

 good job...  BP  you get the frauds   Linkdin   facebook..  

if your at all interested

Google Ingrid Robinson   and American Greed   Remington financial she took down one of the biggest players in the advanced scheme world.. if you can watch the American greed episode its pretty interesting so see how they operate and get away with charging fees and never funding.

Just a heads up: If your limiting factor is lack of funds it's tough to make a HML loan work. There's a lot of HMLs out there, but typically the way I generally approach it is, you want to have money to close if you're using a HML and it costs more than most borrowers think. Also yes, high ARV vs purchase price always helps no matter what you're doing for financing

@Donovan Curry   Always look at your numbers and returns.  That will always answer the question as if you should use a hard money loan or not.

Hard money loans should only be used when the potential purchase needs rehab/improvement.

Personally, I am happy to use a hard money loan if it will help me realize a MINIMUM of a 100% return on capital gain after all expenses (purchase, rehab, lender fees, carrying costs, and selling costs) which means I have effectively doubled my money.  If I'm looking at a buy and hold property, I still want to see the 100% return on capital gain (based on unrealized capital gain, so it doesn't include selling costs) AND a MINIMUM of a 10% cash-on-cash return, giving me at least $300/month in cash flow. 

I've lived in Houston, Dallas, and Austin (all in the last 15 years) and know that this is extremely difficult in the major cities of Texas right now.  Heck, it's not easy in most major cities across the nation (a lot of investors are looking at the mid-west for the best cash flow).

If you are considering doing flips (which can raise cash quickly if you follow the above) and then take the profits and invest in buy and hold properties, you may do better by looking at the secondary cities in the state.  Places like Waco and Corpus.  You'll find less competition and still make money.  These are also good areas now to consider buy and hold.  Since you're in Austin, I'd recommend looking at Waco.  It's closer and will be easier for you to scout out the homes, and keep an eye on the rehab/improvements while the contractors are working.

I cannot stress enough to always, Always, ALWAYS run your own numbers.  Every time you get a new estimate (from appraiser for after repair value, from a contractor for rehab/improvement, even from your insurance provider) enter the figures into your spreadsheet and make sure your numbers are good.  If you don't look out for yourself, no one else is going to look out for you.

If you'd like a hard money lender recommendation, who also can help you with the refinance into long term conventional financing (for the buy and hold strategy), try Gateway Funding.  I forget which city they are in (I think Houston).  I used to use them a LOT.  

Best wishes!

Don

@Donovan Curry Couple things to consider: 1. If you have no experience rehabbing your hard money costs are going to be higher because of lack of experience. 2. I would advise against buying a property at the foreclosure auction for your first deal because you havent seen the inside and you will be blind with regard to repair cost. 3. Have you considered marketing to find your own deals? 4. Do you have a realtor to help you with comps and determining ARV? 5. If you dont have the cash to purchase/rehab definitely talk to some HMLs and get a feel for what the costs of borrowing money are so you can factor that in to your deal analysis.

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@Odie Ayaga Odie, I have about 25k in funds. I'm seeing that these hard lenders do charge quite a bit, I have gotten in touch with individual who is a private lender in DFW, but Its seems no to be easy to find any others in different areas of the state.

@Lydia T. Lydia, Thanks for that. To answer 3, I'm on myhomedeals.com and paid for the elite package. Outside of that I've been networking and posting on biggerpockets and I've ran into people who are sending me deals. Any suggestions on where else I should go? 4.I'm working on getting with a realtor in each city I plan on scouting. 5. I have 25k in cash, I'm considering and reaching out for partners, private lending and hard money. 

@Donovan Curry Im not a fan of my house deals. Make sure you TRIPLE check their numbers before you buy anything. Local wholesalers (find a good one) or marketing for your own deals are the best ways to go. Especially when you are new. Also since you are new I would say start in your own backyard (Austin) before you start trying to do flips in other, unfamiliar markets. I am expanding into the Austin market (been in DFW for 6 years) so Im sure I will see you around! Will definitely put you on my buyers list.

Also, if you dont have MLS access, local realtors can be an invaluable resource. Make sure you compensate them for their time. Good luck!!

Originally posted by @Don Alder-LaRue:

@Donovan Curry  Always look at your numbers and returns.  That will always answer the question as if you should use a hard money loan or not.

Hard money loans should only be used when the potential purchase needs rehab/improvement.

Personally, I am happy to use a hard money loan if it will help me realize a MINIMUM of a 100% return on capital gain after all expenses (purchase, rehab, lender fees, carrying costs, and selling costs) which means I have effectively doubled my money.  If I'm looking at a buy and hold property, I still want to see the 100% return on capital gain (based on unrealized capital gain, so it doesn't include selling costs) AND a MINIMUM of a 10% cash-on-cash return, giving me at least $300/month in cash flow. 

I've lived in Houston, Dallas, and Austin (all in the last 15 years) and know that this is extremely difficult in the major cities of Texas right now.  Heck, it's not easy in most major cities across the nation (a lot of investors are looking at the mid-west for the best cash flow).

If you are considering doing flips (which can raise cash quickly if you follow the above) and then take the profits and invest in buy and hold properties, you may do better by looking at the secondary cities in the state.  Places like Waco and Corpus.  You'll find less competition and still make money.  These are also good areas now to consider buy and hold.  Since you're in Austin, I'd recommend looking at Waco.  It's closer and will be easier for you to scout out the homes, and keep an eye on the rehab/improvements while the contractors are working.

I cannot stress enough to always, Always, ALWAYS run your own numbers.  Every time you get a new estimate (from appraiser for after repair value, from a contractor for rehab/improvement, even from your insurance provider) enter the figures into your spreadsheet and make sure your numbers are good.  If you don't look out for yourself, no one else is going to look out for you.

If you'd like a hard money lender recommendation, who also can help you with the refinance into long term conventional financing (for the buy and hold strategy), try Gateway Funding.  I forget which city they are in (I think Houston).  I used to use them a LOT.  

Best wishes!

Don

we routinely achieve those return results in new construction  it is getting very tough on rehabs though.. there are some new strategies I like though that can help flippers. 

@Donovan Curry   Yes, I'd start with the Bigger pockets calculators.  That's what they're here for.  I was an accounting major 30 years ago, so I built my own.

@Lydia T. I don't know what hard money lender you've used, but I've never had one change rates or terms just because someone was new and I used a number of them in TX. Look them up online and you'll usually find they're: Stated income, stated asset, 70% of ARV, and 10% interest rate, maximum 1 year term.

Actually Don I'm a HML and at least by us yes experience counts. A first time rehabber/flipper may well only qualify for 65% of LTV rather than the 75% cap someone with a few rehabs/flips under his belt would be worthy of.

@Don Alder-LaRue I have met many hard money lenders here in DFW that have different terms depending on the investor’s amount of experience. The terms are more favorable for those who have done several deals and less favorable for those who have done none or very few. I assume its based on the level of risk. But thats just here in DFW. I prefer private money to hard money.