6-plex financing.. hard money??

Question

I have a wholesaler with a 6 unit. Asking price is 150k. It's in a good area. They're efficiency units that rent for $550 each. Each unit needs work, about 50k total.. rents will be more at 650 each after reno. ARV will be between $245-$265k... can I use hard money to fund it and then refi with a commercial lender??

I guess I’ve just never heard of someone using hard money in a commercial property..

Any input is appreciated.

I guess I’ve just never heard of someone using hard money in a commercial property..

Any input is appreciated.

Charles Carillo · Answer

@Nick Monge

Hard money or a bridge loan is a great option for this property. If the renovation was less expensive I would suggest obtaining permanent financing from the beginning but since you are adding considerable value, you may be able to extract a good portion of your initial down payment and renovation funds. I would speak to both hard money lenders and bridge lenders. Before you agree to any financing for the purchase, make sure you have your permanent financing setup for 12-18 months down the road. This will minimize any surprises with seasoning, refinancing terms etc.

Jaysen Medhurst · Answer

@Nick Monge, you can certainly use hard money. Before you pull the trigger, talk to your local banks and credit unions. We were pursuing a 12-unit recently that needs significant renovations. Two local banks offered purchase+reno loans. They required 20% of the total down, so $40k in your case. This will mean much lower borrowing costs and you'll have long-term debt already in place. You're not really adding enough value to justify a cash-out refi.

Nick Monge · Answer

@Tom S. I had no idea you can get commercial lenders to loan the rehab funds. Am I understanding correctly? Or are you saying get the commercial loan for the purchase and use personal funds for rehabs during turnovers?

Account Closed This is in Memphis

Account Closed · Answer

@Nick Monge

Is the property occupied? If it is and the work isn't urgent, just stuff to do as the units turn, you can purchase this with a 80%LTV commercial loan. Of course, I would only recommend this if you've got some spare cash to perform the work as it arises, in case the rehab costs exceed the rents.

A 6 unit at a market value of 265k is a pretty good deal @ 650 rents/ unit (provided the expenses are pretty low). This is really similar to properties I come across in some select markets throughout the midwest and south. It's always nice to know of more- would you mind sharing the city?

Nick Monge · Answer

@Tom S. That is amazing. I'm going to shoot you a message. Thanks man!

Tom S. · Answer

@Nick Monge  Correct, many commercial lenders will lend purchase + rehabs funds.  Try smaller, local banks which will typically keep the loan in-house, which means they have more flexibility on the condition of the place and the funds they can lend.

My typical terms were 20% down on the purchase price, and they would lend the remaining 80% + 100% of the rehab (subject to the appraisal). No points, maybe $1500 closing costs, and the loan converts to a mortgage once the rehab is complete (you don't have to close twice or refinance, in other words).

Because it's commercial the rate will probably float with prime.  My rates are in the 5 - 6% range and 20 year term.

- Tom

Tom S. · Answer

@Nick Monge  Seconding what others have stated, just skip a step and go right to a commercial lender for purchase + rehab funds.  They'll order an appraisal now on the ARV, so you'll know up front much much $ you have to work with, so there should be minimal surprises.  LT debt will be in place and fees will be much less.

- Tom

Jaysen Medhurst · Answer

@Nick Monge, yeah same financing as we looked at, 20% of purchase+reno as a down payment.

The 12-unit didn't work out. The owner went with another offer. This was only a couple of weeks ago, so maybe it comes back around. You never know.

Nick Monge · Answer

@Charles Carillo Thanks for your input. I actually just went to a meetup last night with Cory Nemoto, he started KECO capital here on the island (Hawaii). I'm thinking about giving him a ring for some financing on it. I think it should be a solid BRRRR of a 6-unit. I should be able to pull most of my money out of it when I cash out. I also think that reaching out to commercial lenders ahead of time to discuses the refi is a very good idea. Thanks!

@Jaysen Medhurst What happened with the 12 unit? Did it not work out? That's awesome though. I've never heard of banks willing to fund reno costs too. I do have one lender that will do the 20% down total PP and reno costs.

6-plex financing.. hard money??

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