Cash vs. Hard money vs. What else?

Question

Hello All!

What is the best way to structure the following rental property deal (all numbers are hypothetical)?:

Purchase price - $70K
	Rehab - $20K
	Closing costs - $3K
	ARV - $120K

Option #1: pay $93K in cash, complete the rehab, and then refinance with a conventional loan at 75% LTV of ARV or $90K.

Option #2: get a hard money loan for $83K (70% or ARV), complete the rehab, and refinance with a bank recommended by a HM lender.

#2 would cost at least $5000 more because of 4% points on HM loan in addition to 8% rate. The loan is for 3 months and if I annualize points the effective annual rate is 24%! I can get a better loan from a credit card.

Questions:

How soon can I refinance if I buy with cash? Someone told me that I have to wait for a year if I want to get refinanced based on ARV.

Yet a hard money lender representative stated that IF a loan was from them I could refinance immediately after the rehab using "their" bank. From "their" bank perspective it would look like a purchase at the ARV price and not a re-finance.

So, what are the refinance rules in this case? Are they bank-dependent?

Are there banks that would loan based on ARV shortly after rehab?

Are there HM lenders that charge a straight rate and no points, fees, etc.?

Thanks

Nick

Nick B. · Answer

Thank you, @Stan Butler . I guess I'll pursue #1 provided that there is a bank willing to do ARV-based refinancing within 3 month of the purchase.

@Juan Soto , I am a novice too but I am glad my question was of value :-)

Stan Butler · Answer

Given those 2 choices, Option #1 is a no-brainer in my opinion.

You arent going to find a HM lender that charges no points.  The very nature of the loan is short-term and that is why the interest is front loaded.

As you identified, Option #2 is too costly.  You need to check with the major banks in your area (Wells, BofA) and then also check with community banks to see what your options are.  Your "seasoning" period is going to depend on whether its a traditional or portfolio loan.  This is also influenced by whether you are doing business in your name, or using a LLC or trust.