Thinking about becoming a hard money lender with a cashout refi

[Walther Mendez]

Hey everyone,

My parents are actually looking at this not me. Their primary home is already paid in full (valued at $150k). My parents and I were wondering if taking out a mortgage against their home and using that money to lend to investors is a good investment. They would only take out about 100k that would require roughly a $650 monthly payment. 

First question is what kind of returns could we expect? and what kind of terms are traditional here in the Charlotte NC area. My dad would like to partner with a group of hard money lenders and not really screen candidates himself so he would be more of an investor. 

I have seen this question in the forum before but I was wondering if anyone is the Charlotte, NC area is currently doing this and whether it is sustainable. Seeing how rates may soon start going up it may be best to do this earlier than later if it is in fact a good idea. 

Thank you in advance.

[Chris Mason]

Hi @Walther Mendez,

This isn't a new thing. Usually you use a HELOC ARM, not a 30 year fixed.

• There will be times when you don't have any money lent out because you just got paid back (the borrowers fixed their credit and were able to do a refinance into traditional financing, etc), but haven't lent someone else money yet (you are waiting for a good deal to cross your desk). You don't want $100k sitting in your checking account earning 0.2% while you are paying 4% for it. With a HELOC, you just pay it off when you get paid back. Interest is typically calculated daily. That way you aren't feeling pressured to make bad loans due to interest accruing while in between deals.
• The ARM part isn't a big risk. When your ARM goes up, what you can charge borrowers also goes up. If the HELOC goes up from 4% to 5%, great: jack your rates up from 10% to 14%. You still win.
• There are people that have done all the licensing and regulatory stuff already. If this isn't going to be a full time job for these folks, I'd suggest using these intermediaries. @Shari Peterson is probably a person worth connecting with.
• Even though I'm suggesting a HELOC here, I actually don't have any competitive stand-alone HELOC products at present, so don't hit me up for that. :P This is an area where retail big box banks, as difficult as they are to work with, are better than independent mortgage brokers or companies.

Good Luck!