Hard Money for Buy and Hold Rental Properties

[Karim Conway]

Hi BiggerPockets Community,

I am a new Investor and I just had a quick questions about using hard money to purchase a buy and hold rental property. I plan to Buy, Rehab, Refinance, Rent, and Repeat (BRRRR) by using hard money. Can anyone explain how to refinance on a hard money loan if the property was purchased through an LLC.

Property Details (Purchase price: 115k, Rehab 20k, ARV 180K)

Do banks refinance to LLCs?

Can anyone walk me through or give me steps on how I can go about refinancing?

What are some exit strategies if I am not able refinance? (I would still like to hold on to the property)

[Christopher Blanco]

I have been looking at doing just that and I am happy to share what I have found:

1. It is very possible, and can be very profitable to use HML with high leverage.
2. Call as many different lenders in your area and nationwide lenders and get a feel for who will finance into a LLC and what their seasoning period is.
3. Decide if this is an investment, or a business. If this is a business, don't let the high cost of a HML scare you, especially if you can get 90-100% financing for the deal. If your goal is to refinance as quickly as possible you will be able to buy more properties and have a higher cash flow with the higher leverage.

I have an HML that will lend 90% LTC, then refinance immediately at 80% LTC or 70% LTV after a year for 10,15,or 30 years. No loan floor. What that does for me is as follows:

Assume I have 50K cash to start with, also assume each property I buy for 45K and plan to put $5K into it to make it rent ready. Assume I want to leave 10K in cash for reserves, in year 1 I can purchase 5-7 properties and begin to rent them out. Lets also assume the ARV on each of these homes is 80K. After a 12 mos seasoning, I can refinance each of my 5-7 properties at 70% ARV. That will pull $56K out of each property, $6K (as much as 42K) in cash for each property comes to me. At the end of year two I can have 10-15 properties cashflowing.

Looking at traditional commercial loans (what you need to close in an LLC) they require 25% down at least and at most will only go 15 year notes at this low of a loan. So lets take the same assumptions (50K in cash to start, homes for 45K with 5K repairs, 10K in reserve), I can only buy 3 houses. At the end of year 1 I refinance each of my 3 properties pulling 55K in cash out of my 3 properties. But at the end of year 2 I only have at most 6 properties cash flowing, instead of 10-15.

So its a longer road with HML and more up front cost but play this scenario out (I have with some spread sheets) over 5-10 years and you be amazed what that leverage does for you.