Which one first: Make the offer or apply for hard money loan?

Question

I'm eyeing a single family home listed for $385k and appraised for $510k in 2019.  I plan to acquire the property, rehab, refi and occupy as my primary residence for three years and then rent (military).  Do I submit the offer, then secure the hard money - or secure the hard money, then submit the offer?

Considering the trend in the listing cost (-$50K every 90 days), I plan to submit an offer of $315k to the current $385k asking.  However, I don't know the rehab costs and this makes it difficult of how much to ask in hard money.

Reading the BRRRR and estimating rehab costs books, I think I would proceed as such:  Agent (offer) - Contractor (rehab costs) - Hard Money - Refi

But again, Im unsure.  Any advice would be appreciated!

Account Closed · Answer

Kalvin, it appears you are retired military, thanks for your service. First, contact a mortgage broker in your area and ask about a zero down VA loan. If that doesn't fly, Secondly, hard money goes like this, you write up your offer, gather comps, add rehab costs, figure ARV and present that to a hard money lender. They will come up with different numbers and tell you what they think. Then, if everything is good, they will lend about 70% of the buying price and expect you to come up with the rest. It's called "hard" money for a reason. Better yet is to find a businessman, doctor, dentist, friend who has a 401(k) and use their money., It's a lot easier, a lot cheaper and more profitable.

Account Closed · Answer

The way that VA loans work, it's reusable. One the loan is paid off, it can be used again. Also, depending on your benefits and the situation you may actually be able to two VA loans at the same time.

Whitney Hutten · Answer

@Kalvin Wilburn Just like any purchase process, your offer will be much stronger if you can submit a letter of approval from a lender with your offer package.  This shouldn't be too hard for you since it seems you have other deals under your belt already.  I'd call around today and see what kind of terms you can get and make sure this will work out.  Also, do you have a carryout lender for the refi??  I always coach people to have that lined up before you close so you know you can execute your business plan.  If you need HML suggestions, PM me.

As far as the order to do things, it's not quite as linear... especially if your timeline is short.  Can your realtor get a contractor over there for $50 to do a walkthrough and write up a bid (you can firm up everything during the due diligence process as well)?  Can you call lenders today while your realtor is helping you out?

Whitney Hutten · Answer

@Kalvin Wilburn No.  Just talk to them about the property and your business plans.  What you want to know is their highlevel impressions on being able to refinance you out when the time comes.

Kalvin Wilburn · Answer

@Jeff S. I’ll be purchasing in Hawaii.  Good advice/insight too..I appreciate it!

Kalvin Wilburn · Answer

Account Closed awesome advice, thanks a lot.  I've exhausted my VA loan benefit, which would have been my go-to option.  Thanks for the rundown of the hard money process and insight to the private money option too.

Kalvin Wilburn · Answer

@Whitney Hutten I have a refi-lender in mind.  Are you suggesting I apply for the refi now, before securing the property? My realtor and her contractor are doing the estimate as I type.  I’ve applied to a HML (reference on BP) but I’ll be PMing your shortly.

Jeff S. · Answer

Most private/hard money lenders only make business purpose loans, @Kalvin Wilburn.  By using this property as your primary residence for the three initial years, you couldn’t possibly claim this property is for a business purpose.  As a result, the majority of private lenders won’t be able to make this loan. (I’m using private & HML interchangeably)

Interview some private lenders.  Get to know one another and understand their criteria.  You’ll find they are as varied as fingerprints.  There are some that will do a consumer purpose loan but they are as rare as hen’s teeth.  These typically specialize in lending to the self-employed, commissioned sales people, and others who still have a hard time qualifying for conventional loans.

Alternately, if you’re stuck with private/hard money, and the numbers work, you might consider a triplex or greater.  Per Dodd-Frank, for the purposes of borrowing purchase money, these are considered business purpose loans.  Your state, which you didn’t mention, might have additional restrictions.

To answer your title question, you always want to get your money lined up first.  Don't make an offer on anything you don’t know how to pay for. No seller or their agent will take you seriously without proof you have access to legitimate funds.

Best of luck to you, Kalvin.

Which one first: Make the offer or apply for hard money loan?

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