Has Anyone Actually Used A HML For A Fix/Flip?

Question

Hello BP,

I'm looking into using a HML for my first fix and flip since I don't have a lot of capital available. Ideally, I'd like to do a few of these flips in my hometown of Las Vegas or the New York Metro area, just to build up enough cash to purchase my first multi-family for cash flow. I've read a lot about these HMLs but haven't heard anybody talk about actually using them. I was wondering:

• What is a popular exit strategy?
• Is it possible to do a cash out refi after the rehab (assuming I have the credit for that) so that I can then hold the property as a cash flow?
• Is the proof of funds letter from, say, dohardmoney.com enough to hand to a realtor for them to start helping me find properties and put in offers?
• Every HML asks how much you have available. What am I expected to have in reserves?
• What are the total expenses of getting the loan closed and obtaining title, approx.? Assuming your HML will wrap most of these costs up into the loan?

If anybody could clear up some/all of these for me, I'd be very grateful. I'd like to start looking for properties ASAP but want to be sure I have whatever capital may be required, and fully understand how the payments work, as well as viable exit strategies. All I have learned thus far is that payments are usually interest only after X amount of months if you are still holding the property. @Darren Sager  Any experience using these to obtain or fix and flip duplexes?

Erik Hitzelberger · Answer

@Jason Eyerly I have done several flips with HMLs.  To answer your questions,,

1) Popular exit strategy --> Sell the house

2) Cash-out refi:  In my area, it is very possible.  I have refinanced homes when I decided to do a lease or lease option.  Small local banks in my area do not require a seasoning period.

3) Proof-of-funds: It's best for all involved to a have a pre-approval letter.  In my case, I went to lunch with the HML.  He asked for a few substantiating documents and I was pre-approved in a day or so.  I call whenever I am considering a deal and he sends me a PA letter.

4) HML terms: This is entirely dependent on your lender.  Talk to him/her and understand the terms.  Points and Interest rate is an important part, but not all of it.  How do they handle draws?  What happens if you need an extension? Is there a minimum amount of interest due?

Jason Eyerly · Answer

So you just don't assist people who plan on using a hard money loan? Is your only option then to rent out the property or just carry the heavy payments for a year?

James Wise · Answer

A dohardmoney letter would not get me to drive someone to a property.

If going to do a refi to hold the property most banks will want 12 months of seasoning for you to get a new appraisal with the now (hopefully) much higher value. Some will do 6 month seasoning.