hard money lenders - rental...
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Hard Money Loansfor buy and hold investors
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understand how hard money can be an option the buy and hold investor
what is a hard money loan why they might be a good option pros and cons of using hard money for rentals
Lesson
Agenda:
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What is a hard money loan?
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It’s easily described as obtaining quick money for individuals or businesses for
the quick purchase of real estate
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The birth of this came from individuals having a difficult time to get financing
from a bank…but still needed cash quick to close a deal
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Typically, hard money might be thought of as a flipping strategy
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Because flipping is usually a quick process and hard money loans can get costly the longer you hold the money
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You find a deal to buy, renovate and resell. Your timeline is 3 months to have it
done and hopefully sold in a month because you’re in a hot market
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So, you get a hard money loan that may cost you higher interest rates and shorter terms…but you plan to be in and out of
the deal in 6 months
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So you can withstand paying a little more for holding costs.
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This doesn’t sound so bad for the flippers…
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What about the buy and hold investor?
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While hard money might not be the #1 option you’d use to finance a rental
property, it can be done
For the buy and hold investor…
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We have members in our community who are using this strategy to buy
rentals
For the buy and hold investor…
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So what does the strategy look like for the buy and hold
investor?
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So, let’ use Paul as an example. He found a property that was pretty
distressed and listed well below market value.
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However, he ran into issues with getting financing from a traditional bank.
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But he didn’t let that stop him.
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Because the property is a great deal in a great location he knew that using the
hard money strategy could work.
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You may hear it often referred to as the ‘BRRR’ strategy in the real estate
investing world
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Buy, rehab, refinance, repeat
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You buy the property and complete the necessary rehab in order to force
appreciation on the property
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You wait the required time (6+ months) that you need to hold the property and
then…
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refinance the deal into a conventional loan with a bank
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Once you refinance the property (with better rates and terms) you can pay off
your hard money loan
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And just like that you’ve used this strategy as a way to acquire a property
quickly and at a great price
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You’ve gained the knowledge and you’ve started to save…however….
What you need to know about
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Hard Money
Pros and Cons
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Pros
Can allow you to finance a deal when you can’t get financing from a bank
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Pros
Can allow you to potentially get an even better deal (if you’re able to pay cash using the hard money)
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Pros
Less red tape in order to obtain the money
(no income verification, credit, etc)
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Cons
Hard money has high interest rates (8%+)
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Cons
HM has short loan terms
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Cons
HM can have higher fees charged by the lender
(2% point 10% interest rate)
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While it may not be the best option available for buy and hold investors
Conclusion
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It is an option and can work if you’re able to refinance out of the short term, hard money loan.
Conclusion
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Just be cautious because the fees and high interest rates can eat into profits very quickly if
there is an unexpected turn in timeline
Conclusion