Hard Money Lending and Creative Financing in the BRRRR Calc

[Rob Krin]

Hi All

Hopefully you can follow along with me on my journey here.

I'm feeling the analysis paralysis creep upon me now.  I've now changed my mind on my approach and pivoted my strategy several times so I'm getting worried I might be over analyzing.  Or am I taking the right steps?

Regardless, I'm looking at some financing options for my first buy and hold.  First I thought cheap properties so no problem with me financing them myself.

Then I thought there is no long term sustainability in cheaper properties.

Then I looked at more expensive markets and started evaluating turnkey providers.  This is working out well, just trying to make my #s work.

Then on sidebar, I thought about corporate structure for the corporation.... I don't have yet. After speaking with my accountant and several investors, I got that nailed for the short term. LLC then figure the rest out later.

Now, all that behind me I'm trying to figure out where to find the money to fund my project. I can use my money, take a loan against my 401k, or HELOC against my house or against my only investment property. I need to find the balance my family is comfortable with.

Now, long story short I started thinking about hard money lenders.  Thinking if I borrow 70% for property and rehab then refinance after 6-9 months, I can pay back the loan with equity instantly built.  What fees do I need to know about? How is interest calculated?  Would it be loan x 12% (eg 100k loan + 12% = $112k back to lender?).

Any insights, advice, direction, comments, thoughts, feedback, wisdom, perceptions or sagaciousness would be greatly appreciated.

Regards, 

Rob

[Philip Pape]

Hi @Rob Krin, although I am a new investor myself, I've spoken to a few hard money lenders. I suggest reaching out and talking to a few directly as a first step; they'll tell you exactly what their terms are.

I believe most HML lenders offer 6-18 month terms, interest only, with balloon payment at the end. Plus there are points up-front. For example, a local lender offers terms of 20% down, 10-12% rate, interest-only, with 3-4 points up-front.

So on a $125K deal (that's purchase + rehab) with 20% down ($25K), you'll borrow $100K. At 12%, that's $1K per month PLUS up-front points of, say, 4% ($4K). Yes, it can get expensive but options are also limited for newer investors, so you really have to see if the numbers work.