Hard Money with Equity Instead of Cash?

[Steve Montalvo]

Is anyone aware of any Hard Money Lenders that would lend on the equity in a property? Essentially they would create a lien on the property for the 10-15% most HML require? This would be a seperate property from the property being purchased and rehabed. I am not sure if I heard this could be done or if I dreamt about it. I am in Colorado so my property has a large equity amount but I can't access it without refinancing which I don't want to do, I would like to use a small portion of the equity I have in my property to use HM to get another property. Thanks in advance for any insight.

[Justin Cooper]

Hi @Steve Montalvo

I am a hard money lender in Denver and thought I would jump in and shed some light on a few of the thoughts and concerns above.

First off, not all hard money lenders will require 10-15% down.  There seem to be more and more of us everyday so it is certainly worth calling around to see the options out there.  There are some lenders that will lend 100% of the purchase price and even 100% of the repairs, so keep calling! 

Most hard money lenders do not want to go into 2nd position.  most of us want to be the first and maybe even the only line holder on the property.  Also, I think you are trying to access the equity in your primary residence, correct? so even if you do find someone that will lend in  junior position or cross collateralize, they may not be willing to do that against an owner occupied property.  They may only be interested in lending on investment properties.  

Most hard money lenders do want to take a look at your credit but most will take a more common sense approach, focusing more on the credit report than on the credit score.  so if there is a good reason as to why your score is low and you are now digging your way out and things are going well, it will just take some time, then hard money lenders might be able to get comfortable with you and your credit, more so than conventional lenders.'

As a hard money lender, I strive to set my clients up to succeed, and not fail.  When investors fail it is usually because they run out of money.  Without diving too deep into your situation, When I see you wanting to leverage other properties and borrow more money for the down payments, it make me wonder if you do not have a lot of cash on hand right now.  If that is the case, and you find a way to overage this other property, but then still run out of money when a contractor skips out on your or the change orders start adding up, etc etc, Then you are at risk of losing both properties.  Having enough cash on hand is always important and often overlooked, just be careful here.

That all being said, I don't think anyone had mentioned bringing in a partner or private lender.  Both of these might be a good option to either get money on that high equity property or to come in and be a part of your new deal.  This could be a way to spread the risk and maybe even bring someone in with experience and/or time to help the project be successful.  

Long story short, call around to the lenders and explain what you are hoping to do and see if they can find a way to help and keep an eye on your own situation to make sure you will not get over leveraged and in trouble.