First timer with questions about hard money lenders

[Samantha Gehin-Scott]

I currently own my own and have an investment property that I use for short term rentals. Both of those were purchased with conventional 30 year loans which required a decent amount of capital. People always talk about using hard money lenders, but I’m not as educated as I’d like to be about it. Does anyone have some tips or things you must look at/consider before seeking out a hard money loan? I am located in Maine.

[David M.]

@Samantha Gehin-Scott

Hard money loans are mainly for serious rehabs.  They have very little restrictions the condition of the property and they don't look at your financials.  They are looking at the deal.  What is the acquisition cost, the renovation cost, and the projected sales price.  Based on that, is there money to be made.

The loans are still secured by the property, interest only, must not be occupied, and only intended for 6-12 months. After which you need to refi into some other loan, usually a conforming loan of some sort. So, at the end of the day, you are back to a long term loan. Basically, its BRRRR-type method regardless if you are holding or selling the property.

The main advantage of the HML is it can be done very fast (usually 1-2 weeks), not based on your financials, and doesn't care about the condition of the property. Oh, you also get the renovation costs also wrapped into the loan. You hear somethings about HML lending 100% of the acquistion and/or the reno, but usually you need to come up with ~20% or so that you are invested in the project.

That's the short of it.  Does that help clear it up?