Is it wise to use hard money to purchase a flip to avoid 15%-25% down and then immediately refinance with a conventional loan for a rehab project.
I plan to flip the property in the end but just curious what thoughts are on this and some general advice really.
I personally avoid any sort of hard money lending. But I'm probably more risk averse than the average investor.
Since the foreclosure crisis, lending restrictions have really made things slow going. In my experience, things rarely close on time and during the loan process, things get crazy, complicated, and weird surprises pop up that cause delay. I say this because when I hear "immediately refinance" I think of how nothing seems to be immediate anymore when it comes to getting loan docs in order! My last purchase didn't close 3 times. Not due to anything wrong with our finances, just because the mortgage company was overwhelmed and way behind.
I hear it's that way generally, but I can't say for sure. Curious as to what other investors have to say on this.
Once I got zero down on a flip because I bought a foreclosed triplex from a bank (it cash flows nicely and everything) but I told them I'd only take it off their hands if they agreed to lend me 200k with zero down for a flip home. They said ok and it went very well. It was a small, local bank and so they were willing to do such things.
Most hard money I've come across charges 2-5 origination points which in themselves are enough to avoid hard money if possible.
I'd like to jump in.
What seems to be missing in the hard money loan area is a middle ground for servicing flippers and other RE investors.
The points and percentage is risk based of course, but when you're leveraging that same risk with real property I find it a pretty good deal for the lender.
Seems to me there should be a financing option with tiers:
- 8.5% plus 1 point upon close. You bring 25% to the table.
- 9.5% plus 2 points upon close. You bring 5% to the table.
... something like this. Where the numbers could make sense for more deals.
Anyway, I currently go all cash but I definitely see the benefit of a lender as you can get your hands on more properties at the same time.
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