Words of caution for new investors using hard money lenders?

[Cody Richard]

Wanted to get input from experienced investors in the BP community that have used hard money in the past as part of a BRRRR investment. I have a couple questions that I am hoping the community could help answer!

- What major benefits have you found from using hard money?

- What pitfalls should investors be aware of when using hard money lenders?

- Is there any insights you've gained using hard money lenders that would be useful for a new investor to know?

[Matt Hurley]

I bought my first property with a HM loan, first advice I could give is really have your rehab numbers dialed. You should have a pretty clear picture of what needs to get done and how much it’s going to cost. If you don’t know, get quotes. The more you have these prepped, the faster you can close. 

Second, HM lenders vary quite a bit on their rates. Call around, I spoke with 7 before I found the company I ended up going with. 

Third, they won't lend on everything. General rule is the primary loan amount + rehab cost should be <75% of the ARV. You'll be hard pressed to find a lender who will go above that. If you can't find a property that fits that you may need to pony more $$$ upfront.

Last (for now): your rehab budget will likely be distributed in draws that you set up in advance with the lender. So the order goes: contractor does the work > you pay your contractor > HM lender inspects the property to see the work is done > you get reimbursed for the rehab done. This means you’ll need a slush fund to pay your contractors. If you tell your contractor they’ll get paid when you get your draw, you’re not going to have a whole lot of contractors who want to work for you on your next project  

Any other questions, feel free to ask :)