How to use Hard Money Lenders to build a portfolio?

Question

Hey BP members any advice is greatly appreciated.

I've looked on the forums and blogs but can't seem to find the answers to my questions.

I want to build a business of owning rentals and doing fix and flips here and there.

I live 10 minutes outside of St. Paul MN, my Dad is an experienced contractor and I will have my RE license in about a month so I know with my resources and the market i'm in this can be done.

I am waiting for 2 short sales to go through right now and the banks are taking their sweet time. Both of those needed a 20% down payment which I have from the previous flip I did (these 2 short sales will be buy and holds) but after those I won't be able to make another 20% down payment for a third investment property.

I would like to use a private/hard money lender to help me fund future deals but all of the hard money lenders i've researched require you to already have the property under contract.  What I would like to do is market alot by doing direct mail, driving for dollars, ect.. and be able to use a HML so I can offer cash to these sellers.  Obviously it has to be a great deal and I understand most HML will only finance 65%-70% ARV which is fine.  I will be looking for distressed houses that need work.

Does anyone know how I would go about making this work or any HML that would provide PROOF OF FUNDS available in my name so I am able to make CASH offers on these houses?? I figure if I am able to offer cash I would be able to get some deals a little cheaper.

Please let me know if I'm dreaming and this isn't the way it works. I'm still new to this and am very determined to learn all I can to build my Portfolio.

Travis Sperr · Answer

@Jon Rylander I am more than happy to help you with your questions. I was able to buy 10 rentals using this exact strategy. We are funding a ton of these buy, fix, rent, refi deals in the Twin cities. There is a lot of confusion around offering cash, but if you are using a loan you need to using financing, the title company won't be able to close otherwise. Call or email I will help with anything I can.

Andy Webb · Answer

@Jon Rylander

We are typically doing two types of deals:

1- buying from wholesalers.  They require us to close fast, so it has to be cash or private/hard-money.  In this case the wholesalers don't usually care about seeing a proof of funds.

2- offering on MLS deals, whether privately-sold or REO properties - in this case we provide the HM pre-approval as our proof of funds.  While cash is the best, using hard-money can allow you to be more aggressive in your offer:  shorter close time and you can strike the financing contingency (we have those in our TX contracts; be comfortable with the house as well as your lender if you do this) even though you are financing.

So far our experience buying with HM has been positive.  We prefer distressed properties, so conventional loans just don't work.  HM is a little more expensive, but certainly helps us do more with our limited funds.

Andy

Jeff Rabinowitz · Answer

If you are borrowing money from a hard money lender you are getting a loan. You are not making a cash offer.

Andy Webb · Answer

The Hard Money lenders we have used here in TX have no problem giving a pre-approval letter which states max loan amounts - we use these for proof of funds.  Have you asked why your local guys do not want to do this?  It does not lock them into your deals by any means.

Andy

Jon Rylander · Answer

@Travis Sperr, @Jeff Rabinowitz

Thank you guys for clearing that up for me.  I wasn't sure if the whole cash offer thing was possible.  Does anyone have examples of how they used HML to finance their deals? Good or bad experiences with them, mistakes that were made, or success stories?

Thanks for all your help

Jon Rylander · Answer

Thanks for the reply Andy

I have done some research on pine financial group and red dirt lending and they will only lend to you or take an application if you already have the property under contract which I assume means have a signed purchase agreement. So wouldn't I need proof of funds before I can make an offer especially when trying to make a cash offer?  Are you able to make cash offers or is it more like a conventional loan from the lender?

Does anyone know of any private/hard money lenders that will lend to Minnesota that can make this possible?

Jon Rylander

How to use Hard Money Lenders to build a portfolio?

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