What’s after the hard money loan?

Question

Ok, here’s what I’m trying to figure out.

As a first time real estate investor, I understand what’s available in term of funding the purchase, for the most part.

If we go the hard money/ private lender route, we’ll need to refi after the 1-year balloon, which is what I’ve been told are the terms from the lenders.

If I’m doing short term rentals, my conventional lender is telling me I need to wait 2 years to be able to use the income.

Any ideas out there on how to refi at the 1-year mark for the balloon payment if you can’t use the income yet?

George Despotopoulos · Answer

@Matt Ruttenberg in addition to convectional or portfolio lenders, you could look to a non-bank lender that may be the most flexible and easy to work w/ out of all options. But, it comes with a cost: slightly higher rates & fees. The problem with a short-term rental though is that it's tough to determine/figure out the income producing potential of the subject property. There are things like airdna but they've not become widely accepted in the industry. Typically lenders want to see 6-12 months of income as a short-term rental to be able to do the refi. With that said, you may have some luck getting an exception on this requirement w/ a non-bank lender (also known as a hard money lender, investor cash-flow lender, DSCR lender).

Andrew Postell · Answer

@Matt Ruttenberg Generally speaking there are 2 main types of loans for investors:  “Conventional” and “Portfolio”

Conventional - I'll define these as loans that come from Fannie Mae and Freddie Mac (if you recognize those names).  These loans are all 30 year fixed rate loans.  They have the lowest rates we can find and since they are 30 year fixed...they allow us to cash flow better...which helps us qualify for other loans later. The draw back to these loans is that they are more paperwork heavy than the other "portfolio" types of loans....but if you have ever received a loan on your primary home, it's likely that you will go through the same type of paperwork here with conventional lending.  Fannie/Freddie money = Fannie/Freddie rules. NOT the bank's own money.  These loans have a hard time with short term rentals.

Portfolio - I'll define these loans as loans that come from the bank's own "portfolio" of money.  Sometimes referred to as "commercial" loans.  These loans are a lot more flexible than "conventional" loans.  Bank's money = Bank's rules.  If they like you, then maybe they will lend to you.  But since there is a limit to how much money the bank has access to....their rate will be higher...and usually a shorter term.  The most common portfolio style loan in Texas is a 20 year adjustable rate loan.  These loans are easier to get but the terms are different.  Some of these loans will be ok with short term rentals...and some won't.  So while this is the route to pursue if you go the AirBNB route you still need to interview some lenders up front to see which ones are ok with that type of a property.

Hope this helps!

Josh Caldwell · Answer

Yes, there are products out there that will allow you to refi after you complete your renovation with no seasoning requirements

What’s after the hard money loan?

Most Popular Reply