What a new BRRR investor could could expect from hard money loan

Question

Is it typical for a new BRRRR investor to expect the following from hard money loan/investor:

For the hard money loan to pay for:

a down payment

closing costs

repairs on the house

Thanks you in advance for you help!

George Despotopoulos · Answer

I agree with @Kerry Boyle and @Tom S.

As a new investor, a hard money lender will lend to you if the deal makes sense but expect a higher origination fee, interest rate, and other requirements (like cash reserves/interest hold backs/stringent draw-down for rehab).

There are some private or non-bank lenders that will refi you out of their own hard money loan once you've got renters in place OR the rehab is done and market rent analysis is sufficient/supports the DSCR they want to warrant a refi into a longer term. The rates for that type of loan will be higher than a traditional bank but you won't run into the problem of not being able to get out of the hard money loan.

Tom S. · Answer

@Dan Smith For rehab projects I've completed, the lender was very interested in cash reserves, to make sure I had enough funds to finish the job in case it went over budget. They said the last thing they want is take back an unfinished house.

Also keep in mind even though the lender may fund repairs, typically you have to cover it first and then they will inspect the house and reimburse you after.

Hope that helps,

- Tom

Kerry Boyle · Answer

Is it typical for a new BRRRR investor to expect the following from hard money loan/investor:

For the hard money loan to pay for:

a down payment - A hard money loan will pay part of the purchase price, typically 65-90% of the purchase price.

closing costs - Some loans may include closing costs, this is atypical.

repairs on the house - Most hard money loans to include part or nearly all of the repair budget.

As for HML working with first-timers, I don't think what Jaysen said is the standard. HML will finance your deal and confirm it makes sense, but it may be at a much higher cost than someone with experience. if you are getting rejections it is because your deal, credit history, or assets are not sufficient for the lender.

As for getting your ducks in a row, talk to your hard money lender as well, there are longer terms, extensions, or 'take-out' lenders that they can refer you to that may not have seasoning requirements as long as 1-year.

Feel free to connect with any more questions!

Jaysen Medhurst · Answer

Hi Dan,

If you haven't done a project before, you will have a tough time getting a HM lender to finance your deal. They want to see a track record. Even if it's only one successful project.

Also, need to think through the BRRRR strategy financing with a HM. Typically, they want their money back in 6-12 months. Most banks won't refinance at market price until the property has been stabilized for a year. See the problem? These timeframes differ, but obviously you need your ducks in a row before setting off.

Take some time and talk to all the local/regional banks and credit unions in the area. They usually have more leeway on the kinds of financing they provide.

What a new BRRR investor could could expect from hard money loan

What a new BRRR investor could could expect from hard money loan

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