Hard Money Lenders Brrrr

8 Replies

I've been analyzing a few different properties and am looking to buy my first rental using the BRRRR strategy.. I am currently waiting to hear back from the bank to see what I qualify for, but since I will have a low down payment I know I will have to use a FHA loan or go with a hard money lender in order to rehab the properties. With that being said does anyone recommend a specific lender? Also, what happens if I go with a hard money lender and I can't get a bank to refinance?

Originally posted by @David Fischer :

I've been analyzing a few different properties and am looking to buy my first rental using the BRRRR strategy.. I am currently waiting to hear back from the bank to see what I qualify for, but since I will have a low down payment I know I will have to use a FHA loan or go with a hard money lender in order to rehab the properties. With that being said does anyone recommend a specific lender? Also, what happens if I go with a hard money lender and I can't get a bank to refinance?

Yep HML is usually some money down, 10 to 20% is pretty standard.

You really need to have a clear idea of refi options before you get the HML on a the property.

If you still want the ultimate safety net  make sure any deals you get can work not just as a rental but a flip as well in case you can't refi. 

There are alot of non traditional buy and hold options for loans. If a bank looks like it might be difficult for you can look at commercial loans, hard money loans for buy and hold, non qm loans. 

 

Originally posted by @David Fischer :

I've been analyzing a few different properties and am looking to buy my first rental using the BRRRR strategy.. I am currently waiting to hear back from the bank to see what I qualify for, but since I will have a low down payment I know I will have to use a FHA loan or go with a hard money lender in order to rehab the properties. With that being said does anyone recommend a specific lender? Also, what happens if I go with a hard money lender and I can't get a bank to refinance?

If both you and the project you have in mind qualify for conventional or near conventional loans then that will be the cheapest option. If the numbers and closing speed etc.. all work out.

Someone here mentioned that for a HML you only need 10% down. Often this is true provided that the As Is value is considerably higher than the purchase price. Otherwise, depending on the lenders criteria, your loan might be capped at a percentage of As-Is value. Oh and dont forget you will ALSO need to pay loan closing costs. Typically $6-8K for a smallish HM loan. Plus often you need to pay the first portion of the Rehab untill the first milestone if the Rehab is paid in arrears. Plus extra cash in case of cost/time over-runs. Not to mention loan carrying costs while you work your rehab magic and then attempt your exit strategy.

As to what happens if you cannot get conventional loan refinancing as your exit strategy? Have a plan B. We for instance offer a 30 year fixed, fully amortized loan for purchases or refinances - but it is still Hard Money. For some people the numbers work out nicely. But having a bank or equivilant as plan A does seem wise.

Best of luck with your BRRRR.

There is also a conventional loan product that allows you to include the cost of a rehab in the loan.  This way you won't have to worry about not being able to pay back a hard money lender. Sorry, but I'm not sure what it's called, but I'd reach out to your bank/lender or maybe someone here is familiar with it.  good luck

@David Fischer

Are you intending to occupy the property as well? There are low down payment options, but they are for single family owner occupied loans. If this is what you are looking for; 

FHA or FHA 203k are good options, but come along with high fee's in mortgage insurance that stay on for the life of the loan.

Conventional and HomeStyle loans for a primary owner occupied loans can go as low as 3% down for a first time home buyer and 5% down if not.