Hard money to finance the rehab?

Question

Hello I am looking to invest in a few properties out of state and throughout my search I’ve found a few private or Hard money lenders that are willing to finance 100% of the improvements and 90% of the homes purchase price. My question is should I put the down payment (25%) that I am planning on putting for each property through the hard money lending loan and pay for the repairs separately? Beyond the obvious benefit what other advantages are there to having a hard money lender finance the repairs? Does it make any difference if I put the money down then or when I refinance?

Jay Hinrichs · Answer

one thing to consider is HML usually only advance for work done.. and contractors for rental rehabs RARELY will work on the come.. so in essence you have to pay them then get back filled.

also if you dont use the HML for rehab you dont have to go through all their submission process's and pay for inspections etc etc..

not to mention the savings on points and interest for the rehab funds.. so if your money is just sitting in the bank you could save a few grand

Kris Marmol · Answer

@Jay Hinrichs Thank you Jay, that’s a great point. Our money could be better used in other ways plus we would have more control of the process with our own money.

Kris Marmol · Answer

@Mike Burkett thank you very much Mike, that is great advice. We will be keeping these as a long-term rental properties. And of course we want to have as minimal as possible in each of the properties. I think we’re going to be going with the route of paying the minimal down through the hard money lending while paying for the majority of the rehab with cash. ￼

Mike Burkett · Answer

@Kris Marmol Are these going to be rental properties? If you are going to keep them and they need repairs and you have the cash to put 25% down and pay for the repairs, then you can get a 30 year rental loan up front and not have all the costs of the hard money loan if you were going to refinance into a 30 year loan.

If you want to borrow the most money you can, then get the HML w/the rehab funds and then refinance into a 30 year loan. That loan amount will be limited to 75% LTV so you may or may not need to bring cash to close. And you may walk away with some cash in your pocket.

It comes down to how much cash you have and how much you ultimately want in the house. If you minimize the amount of cash out of pocket and cash invested in the house, you will increase your financing costs. Increase the amount of cash and you can forego the refinancing costs.

Anthony Dadlani · Answer

Why put down money if your lender is willing to fund more ?

Best of luck in all your endeavors

Hard money to finance the rehab?

Hard money to finance the rehab?

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