Good advice on getting down payment from hard money lenders?

Question

So I've read a few of the books from bigger pockets and I like how they give Brandon's examples of good and bad sides of things but I was looking for more examples.

I already have one rental and I have have a good cash reserve (but good is relative) but I'm looking at picking up more properties.  Any advice on working with hard money lenders or investors that are willing to make money on the money they loan me to purchase buy and hold properties?   I'm in the Seattle market and this market is on fire right now.   I have looked through the links that biggerpockets has on local lenders but not sure whats a "great deal" or not.   Some want points and cash, some just do interest only payments and you payback the loan etc.

Anyone done this before and have more examples that add to Brandon's.

Peter Vekselman · Answer

Hey @John Gaber you will probably not find hard money lenders to do long term deals.  these lenders are into turning their money as often as possible and typically don't want to stay in deals more then 6 months.

You need either conventional financing, owner financing, or private money.  I would start out at your local bank to see what they can offer and also talk to some locals mortgage people.  In the end that is your cheapest way to get money.  You will of course need down payment funds going this route.

If down payment is an issue you need to start looking into owner financing, or private funds.

If you need more help just PM me......Peter

Patrick Britton · Answer

HELOCs, other asset based loans, business loans, business lines of credit, third party investors, etc.  At the end of the day, it's all about the relationship between you and your lender.  I would network, network and network some more.  Perhaps partner up with an existing investor.  Just make sure that you add value

John Gaber · Answer

Fair another and that's what it's sounding like the more research I do.  I guess I'm just at a loss on where to find lenders or partners willing to assist with the down payment and I can pay them their money back plus extra for helping me get into the home.   I'm currently saving to by my next home but reading through the posts and listening to the pod casts most of what I've seen is flipping a house and gaining a lot of money from that to inject in buying other houses.   Is this the only way to do it besides just saving from a full time job for the next house purchase?

Nghi Le · Answer

@John Gaber, are you asking if you can borrow down payment from a HML towards a conventional loan on an investment property?

What you're essentially looking for is GAP Funding, and HML typically don't do that.  Only time that they might is when there is significant equity in the property, enough so that the total cumulative loan-to-value (or loan-to-ARV) is up to 65% or 70%.

The biggest problem is that most HML want to be in 1st position.  If they're doing the down payment to another loan/lender, they would be in 2nd position.

And then there's the problem of whether the 1st lender would want to have a HML in 2nd position during closing.  So both the HML and conventional 1st position lender don't want to be in this position...

And honestly, I'd only recommend HML for short-term flips.  They're too expensive for anything long-term.

John Gaber · Answer

I'm not sure I follow,   I can't get money from a HML to pay for a down payment?   I do have HELOC's on my rental and my current home but I haven't touched them yet.   I was using those as a reserve.

Wayne Brooks · Answer

You will Not be able to borrow the down payment on a property from Any lender, let alone a HML, if you aren't putting up a Different property with no/tiny loan on it.

John Gaber · Answer

Yeah that makes since,  I guess I'm looking for how to start that relationship.   I guess I will just reach out to the various hard money lenders and see who gives me the best deal and go from there. I just don't know what to expect,  is the loan going to be for a few months or years.  Will they want percentage to make on their loan and/or points.  I will keep doing some more research and reach out to a few and get the dialog going.

Jerry Tuzil · Answer

it is a little more complicated than just lending money. establishing a relationship with a hard money lender is key. Most hard money lenders do not want their money out for a long period of time, and it gets costly if you do, so coming up with a solid exit strategy is crucial so it does not eat up all your cash flow. Each hard money deal can differ depending on cash down, experience, credit etc. In the beginning there will be some cash outlay (down payment) and mostly always points you just have to factor that in when you are analyzing a property.  as the relationship blossoms and you show what you can do then you have more negotiating power with a lender

Jerry