HML--> Refi strategy for a new investor

[Timothy Gillette]

I'm a new investor and have a goal to purchase 2 SFH in 2013 to hold as rentals.

My strategy is to use Hard Money for the purchase and rehab. Then refinance after a 6 month seasoning period.

My financial situation:

- Married - Together we make a little over $100,000 a year.
- We have about $15,000 in savings right now.
- Our DTI is currently about 16% comprising of just our home mortgage and her student loans. No credit card debt or car loans
- My credit score is over 800 and hers is around 720

The HML I've speaking with will finance 100% of the purchase and repair costs up to 70% of ARV.
They charge a $685 loan origination fee plus 4 points. Loan term is 9 months @ 15% making interest payments only. All fees can be rolled into the loan.

I spoke with a traditional lender and they said they would Refinance the loan after a 6 month seasoning period up to 80% of ARV as long as there was no cash-out.

With this strategy I feel like it's possible to purchase a property with zero money out of my pocket and possibly even get the refi with no money out of my pocket.

These are numbers completely pulled out of no where for the example below:

$50,000 Purchase
$20,000 Repairs
------------
$70,000 Total

$70,000+685 = $70,685+4% = $73,512.40 (Total Hard Money Loan)

ARV would need to be $105,000 in this situation.

$105,000 x 70% = $73,500

I would need to come to the table with $12.40

8 Months of holding costs would come out of pocket. (or until a tenant is found)

$73,500 x 15% = $11,025/12 = $918.75 month + Taxes/Insurance costs.

After 6 months I start the refi process.

$105,000 x 80% = $84,000 ->That's enough to cover the HML loan and the refi fees.

In the end I would basically only have the holding costs invested out of pocket and I would have a property with 20-25% Equity already in it.

Is this a solid strategy? Is this high risk?

Again these are completely made up numbers but they follow what I see in my market.