Anyone used a Hard money for purchase price only???

Question

Hi BP fam,

I would like to use hard money to buy but use my own money to fund the renovations. Has everyone used this method?

It may be a terrible idea but I had to ask.

Andrew Bang · Answer

Investors use and see hard money very differently.  a couple  reasons:  1. Each hard money lender is different, underwriting and processing vary greatly.  If an investor has a bad experience than they tend to apply it to all lenders.  One hard money lender can add value while another strips your profits.  2. Investors have different ROI goals and risk tolerance.   ROI vs Risk.  Hard money can scale the number of properties meanwhile increasing your risk.

When I started flipping homes i used OPM and my own funds and no hard money,  as I scaled I used hard money for part of the purchase, while using OPM for the downpayments and rehab.  I liked this strategy as I didn't have to wait on rehab draws or deal with the lenders rehab draw process.  I kept it separate. Few years passed and  Opportunities came where I would be the lender on properties I would wholesale, realized being the lender on flips is where I wanted to focus my time.

14 years later, I lend on many and flip a few.  When I do flip, I use hard money for all the purchase price, closing costs, and all the rehab.  I don't put a dime into it.  I also partner up with someone that manages the rehab and the realtors.  So I don't have to put any time into it.

That's the difference,  when I started, I was using all the money I had and all the time I had to flip homes,  Now I use none of my money and very little of my time to flip homes.  My money is working in multiple passive ways.

Brandon Vukelich · Answer

Hard money works.  I have used it to finance the purchase of a SF BRRRR deal at 8% for six months, then we re-fi'd into 3.75%.  Also used HM at 6.875% for a 3-unit Airbnb property.  That one had a 2-year pre-payment penalty so we are in the process of doing a re-fi on that now around 5.25%.  Both cases we had to pay about a point in fees and they penciled and worked fine.  The benefit is the easy and quick funding process.  In most cases, it's definitely not a long-term solution.  Just another tool to help get deals done.

Matthew Crivelli · Answer

Account Closed You can use a bridge loan to purchase the property with out the rehab money included. This is a really good strategy when buying properties that have built in equity and don't need much work.  If the project is clearly in need to repair your HML will most likely ask to see your rehab budget and will want to verify you actually have the means to pay for the work.

I know when we fund a rehab loans our borrowers only pay interest on the rehab money after it has been drawn. (You would pay origination on the rehab money) So it can act as a safe net for you at the least.

Wade G. · Answer

Yes, anytime I have used hard money I have paid for repairs with my own funds.  I never liked the idea of the lender giving me the money for repairs on draws and the having to get the repairs inspected along the way.  That is just a hassle that slows me down.  By the end of the first month I am preparing to refi out of the hard money and into fixed rate term.

Mitchlyn D. · Answer

Yes, I have used it to purchase a duplex when the Bank decided not to fund the deal because I accidentally emailed the inspection report.

With that being said, as long as the numbers make sense, then do the deal.

Do shop around for the best rates.  Let me know if you have any questions!!  :)

Hoa Nguyen · Answer

Hard Money Loans should be viewed as a last resort, but shouldn't be counted out entirely. If faced with a scenario where you have a good deal, but can only secure a hard money loan, it is better to use that option than to have no deal at all. Remember you can (and should) refinance out hard money loans as soon as you can.

Bob Anthes · Answer

@Gerrett Houston I have used hard money when I first started.  It was a 12 month interest only loan at 15% plus 3 points.    I paid for the rehab with my cash.   Sold the house within 120 days and profited $40,000.    Was the hard money loan expensive maybe but look at the upside.    Hard money has its place but know what you are getting into upfront.  Make sure you have enough for the rehab maybe double what you have estimated.   I now will use a private lender in some cases.    Good Luck!

Account Closed · Answer

@Mitchlyn D. I have to admit, finding a good reputable HML is where I get stuck. Are there any important factors that I should consider when deciding to work with any HML?

Account Closed · Answer

@Andrew Bang thanks Andrew, I really appreciate you sharing your experience and perspectives. The draw process is also one of the possible requirements of a HML that I don't particularly like. I can fund the renovation myself and keep the work going.

Jason Gorenchan · Answer

Hard money has its place. It can be expensive but if you have a short deadline to pull off a profitable deal it is one way to do it.

Anyone used a Hard money for purchase price only???

Most Popular Reply