Hard money flip to conventional funded AirBnb

[Patrick Geers]

Okay, I had some trouble putting my random thought into a comprehensible form so bear with me...

Let's say I use hard money to fund a fix/flip in a hot rental/ vacation area. 

Assuming all went well and the value is at or exceeding market value, would it make sense to then get conventional financing, pay off the hard money loan, then keep the flip as an Airbnb or short-term rental? 

Also, I would be using hard money assuming I wouldn't be able to get conventional financing on the flip in the first place. Just looking for some experienced or knowledgeable insight to if this idea would be feasible let alone logical. 

Thanks for the input!

Patrick 

[Chris Mason]

Originally posted by @Stephanie P.:

Originally posted by @Patrick Geers:

@Caleb Jordan@Stephanie Medellin@Stephanie P.@Daniel Molina@Jason Hirko@Aaron Cullen@Chris Mason

Thanks so much for all of your input! I'm glad to hear that this idea's been implemented before and it can actually work(if qualified).

So another question I have stemming from most of y'alls responses,

Could you guys give an example you've seen/used for long-term HML financing? Thanks again!

I've seen the term lately, "long term HML financing" and I would call it more non-qm lending than hard money. With hard money, it's usually an interest only loan. The example below is full amortized.

Last one I saw closed on a 7/1 ARM and the rate was 7.2% with a cost of 2 points origination. That was a

• no income verification
• new construction (in the first phase of two of a new condo development)
• non-warrantable condo/townhouse

The borrower provided a 12 month proforma and the appraiser used short term comps vs typical long term comps.

 Agreed; non-qm occupy the space in between Fannie/Freddie and hard money. They are a type of portfolio loan.

Here's the details of a recent one I did.

- Self employed < 2 years.

- 10% down; primary residence.

- Tax returns not used for income calc; business bank statement deposits were.

- Low DTI, strong reserves.

- Rate in the low 6s, a tad over 1 point. 

- 5/1 ARM.

One in the works right now is a jumbo 40 year fixed with the first 10 years being interest only, high 5s for rate. Only reason that one is non-qm is because the term is longer than 30 years. 

Rates on these span the entire range from where Fannie stops to just before hard money starts. It's risk based, mostly based on how well or poorly qualified the borrower is... "near miss" or "almost Fannie" is going to get way better terms than "almost hard money only." I could share other anecdotes where the rate was in the single digits but just barely.

There's only 3 or 4 non-qm lenders that dominate the market. It's not like the Fannie stuff where there are 5000 different investors. Since there are so few, it's basically "their way, or the highway," and they do not compete on speed/service (in spite of what they pitch to LOs, promising the world...) so be ready for a slower closing (but it WILL close) and more back and forth than usual. It's not really possible to do accurate solid rate quotes until all paperwork is in-hand and the LO pitches it to the different non-qm investors; each one has a half dozen different mortgage products with their own 100 pages of guidelines... it's not like the Fannie/Freddie stuff where we all have it mostly memorized.

And these aren't "subprime," if anything they are actually more time-intensive to close than a vanilla Fannie loan. If it doesn't have the FNMA/FHLMC stamp of approval, Wall Street wants their loan files to be absolutely pristine.