Hard Money Quesrion

[Sachin Bhat]

So if you have an option to purchase a property to buy and hold with a hard money and you have two option which one would you chose? Options being as follow

First lender charges 3 points and possibly 8% rate

Second lender charges 2 points and 9 % charge

Plan is to refinance after 6 months and pay off the hard money loan.

Second question

I also have a lender who offered a line of credit but they charge 15% up front and 7% variable rate. I have access to the funds for 5 years. I reuse the funds many times as I want. Is this a good deal to get if I want to use the money to do some flips.

Thanks for any input.

[Michael Ealy]

Originally posted by @Sachin Bhat:

So if you have an option to purchase a property to buy and hold with a hard money and you have two option which one would you chose? Options being as follow

First lender charges 3 points and possibly 8% rate

Second lender charges 2 points and 9 % charge

Plan is to refinance after 6 months and pay off the hard money loan.

Second question

I also have a lender who offered a line of credit but they charge 15% up front and 7% variable rate. I have access to the funds for 5 years. I reuse the funds many times as I want. Is this a good deal to get if I want to use the money to do some flips.

Thanks for any input.

Sachin,

Let me answer the first question first as that is more straightforward. It's all math. If you can indeed refi after 6 months then you base your decision on the lower cost of money:

Option A - 3% upfront + 8% interest per year x 0.5 (6 months is 50% of 1 year) = 7%
Option B - 2% upfront + 9% x 0.5 = 6.5%

Option B makes more sense.

The answer to your 2nd question is not as straightforward. It depends. 

The nice thing about line of credit is that you pay interest only on the amount you use.

How many deals can you do in a year?  Do you have rehabbing experience? Rental property experience?

The downside though is the 15 points upfront. That is TOO MUCH. That means that even if you don't use any of the money, you're already paying 15% interest.

If your credit is really good and/or your LLC has existed for more than 1 year, you can get an unsecured business line of credit with 1 point upfront and 6-7% interest.