Rental Property Investor · Los Angeles, CA · Member since 2020 · 4 posts · 0 votes
Hello bigger pockets forum!
I am a new investor (no property’s yet) but I’ve been studying real estate investing for over a year now.
My understanding of hard money lenders and their process goes as follows:
1.You get a hard money loan for the price of the house and the rehab costs.
2. You rehab the home within a certain amount of time being 6 to 12 months on a high interest loan with two or three points.
3. You cash out refinance and being that your estimated ARV is correct, you pay back your hard money lender and use the rest of the money to invest in another property..
Is there something I’m missing? Is there any fees or costs that I’m missing?
Specialist · Delran, NJ · Member since 2016 · 2k+ posts · 951 votes
6y
That's both a little too specific and a little too general.
Hard money loans are typically 2-4 points 8-12%...could be more, could be less. I've seen terms as short as 3 months and longer than 12. There are fees and costs, but they vary from lender to lender. There's typically an appraisal cost, draw fees/costs, extension fees, closing costs etc.
Cash out refis work the same regardless of the lender. You get a refi lender who gives you a percentage of either ARV or LTC and typically you'd use all or part of it to pay off your previous lender (ideally it would be enough to entirely pay off your previous lender plus more).
Specialist · Delran, NJ · Member since 2016 · 2k+ posts · 951 votes
6y
That's both a little too specific and a little too general.
Hard money loans are typically 2-4 points 8-12%...could be more, could be less. I've seen terms as short as 3 months and longer than 12. There are fees and costs, but they vary from lender to lender. There's typically an appraisal cost, draw fees/costs, extension fees, closing costs etc.
Cash out refis work the same regardless of the lender. You get a refi lender who gives you a percentage of either ARV or LTC and typically you'd use all or part of it to pay off your previous lender (ideally it would be enough to entirely pay off your previous lender plus more).
Lender · Tyngsboro, MA · Member since 2009 · 3k+ posts · 2k+ votes
6y
Also, rates and terms from local hard money lenders are regional/local, and are based on supply and demand. Your profile doesn't state your location, so there is no way for a local-to-you lender to jump in.
Specialist · Delran, NJ · Member since 2016 · 2k+ posts · 951 votes
6y
It depends. If it's a pretty vanilla deal you might get the best deal from a lender in Wisconsin even though your deal is in Texas. If it's a deal with warts you might need a local lender.
@Ann Bellamy I am in California but would like to invest out of state.
When I’m ready should I contact hard money lenders in the state I’m currently in? Or the state I’m investing in?
The first thing is they have to be willing to lend in the state where you are investing. And local lenders are always faster and more market savvy than national lenders. So the state where you are investing. Unless the lender won't lend to out of state borrowers, which happens also.
Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
6y
Local banks are always best - in this hot market mainly because the seller will know and trust them more then a bank he has never heard from. Most buyers do not even think about this when choosing a lender...
Most HML want you to have skin in the game too and will expect you to put some of your own money at risk as well, just like a bank.
Investor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes
6y
I'm not sure what you mean by "the rest of the money," but in general, yes, that's correct. Feel free to reach out to my, I've done a billion BRRRR deals, even before there was a name for it. Happy to help you along the way.
Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
6y
Hi @Arturo Romero in your scenario, I am with @Corby Goade - it sounds like your refi will simply be sufficient to pay the HML back. You'll have a cash flowing property with equity, which is great, but no additional cash - you'll just need another HML to do your next property. You don't get any additional funds unless you were so spectacularly successful on juicing the ARV that your refi covers the HML with some cash to spare, which probably was consumed by financing and holding costs anyway.
Also, be sure to get pre-approved / estimates for your conventional refi before starting this process, you don't want to be stuck with an HML you can't pay off, extend, or refinance.
Rental Property Investor · West Bend, WI · Member since 2015 · 931 posts · 598 votes
6y
Is there a reason you need Hard Money Vs working with a small local Bank? you will have skin in the game either way and banks are usually cheaper interest and closing costs. for investment and needing rehabs Commercial loans are the way to go, 3-5 year ARMS usually Prime + something depending on your income and credit history and the deals DSCR. Hard Money is expensive. My Opinion is, if you cant borrow from a bank, you need to work on getting your personal finance house in order before you jump in to Real Estate Investing, it takes a lot of money to stay afloat in this business. things can happen that will break you. but it can be the best investment of your life, just be prepared.