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Using hard money to flip a house and then make it my primary residence?

Mike Romano
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Posted Aug 1 2023, 06:33

Hello,

Is it possible to use hard money to flip a house and then make it my primary residence?  I have my primary home which I'm planning to stay maybe for a year, I'm exploring the possibilities of how I can achieve this. Additionally, my company is already established, and it's the one I use for my house flipping.

I appreciate your help in advance!

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Replied Aug 1 2023, 07:06

@Mike Romano

Well, I guess....

Remember, hml are short term loans, about a 1 year or less, and NON-owner occupied. So, if you refi into some other loan that could work. Also, its usually not advisable to hold your primary residence in a company / LLC. So, I guess you could swap Title back to yourself. Or, just not bother with the LLC (which I'm in the camp of it being overrated at times).

If you already have a primary, what are you trying to do?  just move but buy a fixer upper?

Consult a qualifed professional.  

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Replied Aug 1 2023, 07:40
Quote from @Mike Romano:

Hello,

Is it possible to use hard money to flip a house and then make it my primary residence?  I have my primary home which I'm planning to stay maybe for a year, I'm exploring the possibilities of how I can achieve this. Additionally, my company is already established, and it's the one I use for my house flipping.

I appreciate your help in advance!


 YES, not really sure what else to say, HM lender does not care how you " get it out of their name " 

good luck 

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Replied Aug 1 2023, 07:40

Thank you, @David M. My primary residence is under my name, not the LLC. I'm interested in using a Hard Money Loan (HML) for a fix and flip, which I plan to live in as my primary residence. Afterward, I'd like to explore the possibility of refinancing it under my name. However, one challenge is that HMLs are typically intended for non-owner occupied properties.

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Replied Aug 1 2023, 07:44

@Mike Romano

Right....  So, find a hml that is fine with funding you under your personal name, get approved for the expected new loan, then you can go ahead with a fixer up with hml.  After the remodel is complete, refi out of the hml into a conventional loan or something and move in.

If you want to move in during the reno that could be problematic.  You would need some other sort of financing I woudl think.

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Replied Aug 1 2023, 07:45

What you're describing is not flipping a house. This is a more accurate question:

Is it possible to use hard money to buy and remodel a house then make it my primary residence?

And the answer to that question, is no. 

Maybe you could find a loophole where your LLC buys and remodels the house, then flips the house to your personal name where you use conventional financing. That also could be illegal though, honestly not sure. Talk to a real estate attorney and your hard money lender.

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Replied Aug 1 2023, 07:48
Quote from @Bob Stevens:
Quote from @Mike Romano:

Hello,

Is it possible to use hard money to flip a house and then make it my primary residence?  I have my primary home which I'm planning to stay maybe for a year, I'm exploring the possibilities of how I can achieve this. Additionally, my company is already established, and it's the one I use for my house flipping.

I appreciate your help in advance!


 YES, not really sure what else to say, HM lender does not care how you " get it out of their name " 

good luck 


 "YES, HM lender does not care how you get it out of their name"

Bob I know you're experienced. I've seen you around the forums forever. But this is just flat out, 100% wrong. Have you ever got a hard money loan?

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Replied Aug 1 2023, 07:52

@Scott E. agreed, I think the question or issue needs to be reframed...

@Mike Romano I guess to continue..  what driving you to using hml?  Are you doing the remodel yourself?  What about a 203k or reno loan --- you just have to hire one GC to manage the remodel..

If this a "normal" deal but just for yourself, I'd say try a private money lender

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ModeratorReplied Aug 1 2023, 13:16
Quote from @Scott E.:
Quote from @Bob Stevens:
Quote from @Mike Romano:

Hello,

Is it possible to use hard money to flip a house and then make it my primary residence?  I have my primary home which I'm planning to stay maybe for a year, I'm exploring the possibilities of how I can achieve this. Additionally, my company is already established, and it's the one I use for my house flipping.

I appreciate your help in advance!


 YES, not really sure what else to say, HM lender does not care how you " get it out of their name " 

good luck 


 "YES, HM lender does not care how you get it out of their name"

Bob I know you're experienced. I've seen you around the forums forever. But this is just flat out, 100% wrong. Have you ever got a hard money loan?


 I am assuming Bob is referring to to getting the loan paid off.  So why would a HM lender care how they are paid off?

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Replied Aug 1 2023, 13:55

I've wondered the same thing! I think it shouldn't be an issue, but it would be best to speak with a hard money lender to confirm. 

I have done this on BRRRRs wherein I refinanced with a conventional investment property loan under my personal name after the rehab due to the better terms. I simply had to quit claim from my single member LLC into personal prior to the refinance. I don't see why it would be any different refinancing into a personal loan.

A couple of watch outs though:

1. Conventional loans often have seasoning periods for cash out refi. If you were thinking to be all in for 80% of ARV and then refi using 95% LTV loan you'll likely need to have owned the property for at least 6 months.

2. You'll need to have your current primary rented out or sold prior to getting new primary loan most likely due to DTI restrictions.

Good luck! 

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Replied Aug 1 2023, 14:16

Why are you not just buying this as a primary in your own name with a regular owner-occupant loan? You’d save costs, pay lower interest rates, cut out all the complications.

Is it unlivable today? People have been doing “live-in-flips” for decades if you plan to sell it after it’s your primary. Otherwise it’s just a fixer-upper primwry, that’s even older. This is another possible major downside to your plan. If you buy it as a flip first, that means under no circumstance can you ever sell 100% tax free. You’re going to get a proration. This alone could cost you 10’s of thousands of dollars. (Assuming the llc is a disregarded entity. The irs is going to say you bought it as an investment first.)

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Replied Aug 1 2023, 14:24
Quote from @Greg H.:
Quote from @Scott E.:
Quote from @Bob Stevens:
Quote from @Mike Romano:

Hello,

Is it possible to use hard money to flip a house and then make it my primary residence?  I have my primary home which I'm planning to stay maybe for a year, I'm exploring the possibilities of how I can achieve this. Additionally, my company is already established, and it's the one I use for my house flipping.

I appreciate your help in advance!


 YES, not really sure what else to say, HM lender does not care how you " get it out of their name " 

good luck 


 "YES, HM lender does not care how you get it out of their name"

Bob I know you're experienced. I've seen you around the forums forever. But this is just flat out, 100% wrong. Have you ever got a hard money loan?


 I am assuming Bob is referring to to getting the loan paid off.  So why would a HM lender care how they are paid off?


I don't see how you arrived at that assumption...

The poster wasn't asking about how the hard money lender is paid off. They were asking if it is possible to "use hard money to flip a house and then make it their primary residence"

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Replied Aug 1 2023, 14:25

@Bill Brandt one comment --- since its a flip, he'd have a tough time declaring it as an investment. But, couldn't OP still take advantage of sec121 if he purchased personally and used HML to start? Its still under his name?

@Timothy Howdeshell fyi:  I just read on BP (so not sure if correct), but Fannie Mae changed Title seasoning to 1yr.  Will have to check it out...

(consult a qualified professional)

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Replied Aug 1 2023, 15:06

@David M.

It’s not really a “flip” if he intends to make it his primary home. A flip would be buy, fix up and sell to someone else to make a profit. 

He can take advantage of sec 121, BUT, because it won’t be  his primary at the beginning he will only get a prorated portion tax free. This fact alone could make this plan, not considering the added costs and complications. 

Let’s say he owns for 3 years and increases the value $100k before selling. I assume that’s the bare minimum for all this playing around. He would owe taxes on 1/3rd of that. 

He’s also paying higher borrowing costs, and higher interest rates for a one year loan. Before starting over and getting the loan he should have gotten in the first place. MAYBE, if this is a small deal he’s only flushing $10,000 down the drain. Maybe it’s not a $50k mistake if the property’s cheap or the value add is small. But, why? What’s the upside?

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Replied Aug 1 2023, 15:11

@Bill Brandt

yeah. good point.  Its kinda messy...  And its not until after the hml could it be his primary since hml's are non-owner occupied.

But, that's kinda why I figured if you took Title in the first place under personal name, it could be called his primary from Day 1.  He was just fixing it up.

Yup, the hml has higher rate and usually points.  That's why I suggested a 203k/reno loan.

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Replied Aug 1 2023, 15:26

Just broad strokes here without even getting into other posters comments, from the lending perspective, a HML has no tenants tied to it because its expected to be vacant for the time of construction. You are expected to refi out of the reno loan, sell it, whatever you intend to do as long as the note gets repurchased or paid off before it matures. So hypothetically speaking you should be able to refi in a primary mortgage no problem. The only issue I see is it cant be your existing primary at time of application. Another can of worms if so. Good luck! Happy to connect more with questions!

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Replied Aug 1 2023, 18:20

No - see Dodd Frank regulations.

Hard money lenders will make you sign an agreement saying you do not intend to make it your primary residence. 

The reason for this is if they are lending for a primary residence then they fall under Dodd Frank rules.

If you pay off the loan and then make it your primary I believe you should be okay since there is no longer a lien on your property from the HML.

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Replied Aug 1 2023, 19:57

We did this last year! Our intent was to sell but we ended up needing the extra space so we moved in! Started out with a HML (I believe 1 year term), reno took four months and we used a cash out refinance with a local lender to pay off HML and then moved in. We were not able to occupy the home until after the refi. Ownership went from LLC to personal names and now trust. I can't remember the exact requirements of the refinance lender but I do know we had to be 100% owners of the LLC. We also weren't able to profit off of the refinance like we would have if we sold but we traded for tons of equity and a larger, renovated house! Good luck!

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Replied Aug 10 2023, 19:34

Thank you so much everyone I appreciate all this great info I would try going to try what @Natalie B. did.