Using Hard Money Lenders to Then Refinance for Long Term

[Derrick Casson]

Hey Bigger Pockets fam! I have been doing a lot of research lately on how I want to jump into the real estate investing game. I’m 100% sure House Hacking is what I want to do for my first property, but it’s getting the first property that has me stuck. Living in Chicago, multi unit building are literally everywhere but the further north you go, the more expensive it gets. I’m noticing a trend where there are places that are up and coming and I’m trying to get in the area before property value goes way up. So finally here’s my question... if there’s a 2-flat building for sale at $160k that needs a little work, I can get a hard money lender to loan me the amount to not only purchase the building but also to do the rehab. Most places I’ve seen that do this give you 75% of the after rehab value. Most buildings that are similar in the area are going for around $300k-$330k. So basically I would get a loan for around $225k. That’s to purchase the building and have money for the rehab (about $65k). Now the part that’s tripping me up.... once all the work is done and I want to refinance for a long term loan and pay the hard money lenders back, what’s the amount of money I get the long term loan for? The new appraised value of $300k or that $225k I got loaned to me from the hard money lender? Because what if I can afford a 30 year $225k montage but not a $300k 30 year mortgage? My apologies for the long scenario but rather than google a billion articles that I have been I thought I’d come to you all for some help... thanks!!

[Anthony Dooley]

@Derrick Casson @Kyle McCorkel answered your question. I just want to jump on and say that this is probably the worst time in over a decade to "jump into the real estate game." Buying in an up and coming area in hopes that prices will go up is speculation.  You should buy something that cash flows on day one. 

Maybe prices will go up, but what if they don't? They could go down. If you disagree with that statement, I would encourage you to get better educated before borrowing money in hopes of getting rich. If the 2 flat is such a great deal, why hasn't a more experienced investor with cash already bought it? Things almost never go as smoothly as we imagine they will.