203(k) vs. hard money lender for BRRRR

[Joseph Belgrad]

Hello, really new to BiggerPockets so if this topic has been discussed already then my mistake. Why use a hard money lender over a 203(k) loan when purchasing a fixer-upper? If the hard money lender lends at 12% interest and the 203(k) lends at 5% interest, it seems to make more sense to use the 203(k) initially and then refinance into a conventional loan in the same manner as you would if using a hard money lender. The only downside I can see to this is that you would have to live on site until the refinance due to the requirements of the 203(k) loan.

[Blake Dailey]

One big thing to consider is that with the 203(k) loan you have to jump through a lot of hoops. You have to use specific contractors, the bank has to check the work and approve it, and then they will give a draw check to pay the contractor. Because you are dealing with a bank this process usually moves very slowly and your contractors don't get paid on time and the project ends up being very lengthy. With hard money you get ease of transaction and quicker timelines for your draws - usually after just showing the receipt. That comes with a price of course but makes your life easier. I would say to be prepared for frustration if you go the 203(k) route, but with that being said it can be worth it for the low cost!