Does it Make Sense to Buy Rentals With Hard Money?

Forney, TX · Member since 2017 · 23 posts · 13 votes

Does it ever make sense to purchase a Buy & Hold property using hard money? If so how do you eventually get the hard money lender paid back if you're simply renting out the property and not flipping it. Would you at some point just refinance the property into a conventional loan? How could you do this if there wasn't a lot of equity, but the property was cash flowing over $300 a month? I've been running the numbers on houses as rentals and I have found some very good prospects, but I don't have the money to purchase the homes outright or the 20% down payment for conventional lending. Want kind of incentives could I offer to private money lenders to help me acquire rental properties? What would the structure of these deals look like? Thanks!

0 Reply

65 views

Most Popular Reply

Mike BuchheitPro Member

Pella, IA · Member since 2016 · 8 posts · 15 votes

The first several can be the hardest. Have to get very creative on source of hard money. No wrong answers. LOC, credit card, family, friend.

I typically go after properties I can buy $0.60 on the $1. Then put $.20 on the $1 into rehab. Leaves me 20% equity and the bank will finance up to 80%. No money out of pocket -- go to the next. Two deals per year for 24 years and 48 properties later I have close to $1M net worth in real estate and still growing.

11 Reply

See this reply in the discussion

21 Replies

Jump to latestLatest

Sort by

Greg ScottPro Member
Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
9y
Yes. Absolutely yes.
You buy properties using hard money when they are distressed assets. Usually no bank will lend on them. Hard money lenders will lend both on the acquisition and fund a portion of the rehab. After the rehab is complete and a tenant is in place, simply do a rate & term refi.
Here is a live example. Purchase price $70K. Rehab $25K. ARV $120K. Borrow $84K hard money to buy. Refinance that later into conventional. Total out of pocket ends up being under $20K on a $120K asset.
@Jeff Montanya I see you are near DFW. Please consider joining Lifestyles Unlimited. They have an office in Las Colinas and several live classes every month. You will learn how to do this. I live in Michigan, but fly into DFW to take classes there!
9 Reply
Raul R.
Rental Property Investor · New York City, NY · Member since 2017 · 493 posts · 386 votes
9y
It does make sense with certain markets to go in with hard money. My first REi I borrow from my 401k and HELOC to get the cash I needed. After I purchase property I did a cash out refinance to pay most of my debt.. Some banks offer Personal Line of Credits, I have one as well. Some people use Credit Cards special offers for the cash but that's very risky you need to do your numbers right .. Raul
1 Reply
Matt K.
Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes
9y
Hard Money is still going to require you to put your own money into the project and that's going be even more true if you have no history/relationship with the lender or even doing this. Think of your portfolio as your resume and HML as someone looking to hire you.
1 Reply
Roger S.
Investor · TX · Member since 2015 · 393 posts · 290 votes
9y
I have a North Texas bank that will do in house financing at 15% down if you're interested.
2 Reply
Mike BuchheitPro Member
Pella, IA · Member since 2016 · 8 posts · 15 votes
9y
The first several can be the hardest. Have to get very creative on source of hard money. No wrong answers. LOC, credit card, family, friend.
I typically go after properties I can buy $0.60 on the $1. Then put $.20 on the $1 into rehab. Leaves me 20% equity and the bank will finance up to 80%. No money out of pocket -- go to the next. Two deals per year for 24 years and 48 properties later I have close to $1M net worth in real estate and still growing.
11 Reply
Melvin ListBusiness Member
Lender · Tampa, FL · Member since 2016 · 1k+ posts · 381 votes
9y
@Jeff Montanya yes but there are better options out there depending on your specific situation
C2 Financial
Website View Page
1 Reply
Jeff Montanya
OP
Forney, TX · Member since 2017 · 23 posts · 13 votes
9y
Thanks everyone for your comments!
@Mike Buchheit that is truly inspiring! @Greg Scott Can you send me a DM to talk a little bit more about Lifestyles Unlimited? The classes must be really good to fly in from Michigan!
1 Reply
Lynn Dee Murrow
Investor · Las Vegas, NV · Member since 2012 · 119 posts · 104 votes
9y
@Jeff Montanya I am the EVP of Lifestyles Unlimited (always like to disclose that up front here on Bigger Pockets. our team will always let you know we work for lifestyles Unlimited).
If you are buying a distressed property, hard money or private money is a great option that typically reduces your cash out of pocket and increases your return on investment. If you go into the closing with all your plans in place including a well thought out scope of work, a contractor ready to start work the day after you close, and your re-finance lender ready and waiting on your file from the hard money lender you can be out of hard money in 45 days. Even a large rehab can be completed in 30-40 days, you schedule the re-finance appraiser for the day of or day after your final rehab walk through and you schedule your tenant to move in the day after that.
Hard money lenders are easy to find if you get involved with investor groups, and there are some great referrals right here on Bigger Pockets! Your affiliation with the group is usually enough to not have additional requirements for being new. You can find out more about Lifestyles Unlimited from @Greg Scott who has been a member for a long time. Just google our name if you are interested.
You will get a lot more great input right here I am sure.
6 Reply
Patrick Galvin
Savannah, GA · Member since 2018 · 1 post · 1 vote
8y
going back to the example, how much does the hard money lender want on top of the 84k they invested into your venture, when you essentially buy them out and pay off the loan?
1 Reply
David Weintraub
Lender · Berkeley, CA · Member since 2017 · 1k+ posts · 549 votes
8y
There are HMLs with buy/hold loans where you can use a straight HMLoan, and then refi into a longer term if you can’t get bank financing. I can walk you through this if interested
1 Reply
Darrin L DePriest
Member since 2019 · 1 post · 0 votes
7y
Walk us through David..thanks for the education info
0 Reply
Brandon Burke
Member since 2022 · 2 posts · 2 votes
3y
Quote from @David Weintraub:
There are HMLs with buy/hold loans where you can use a straight HMLoan, and then refi into a longer term if you can’t get bank financing. I can walk you through this if interested

Hello David. I am interested. I am in Georgia, looking to purchase my first property. Currently searching for best financing option.
1 Reply
Peter MckernanBusiness Member
Residential Real Estate Agent · Irvine, CA · Member since 2013 · 2k+ posts · 1k+ votes
3y
Quote from @Jeff Montanya:

Does it ever make sense to purchase a Buy & Hold property using hard money? If so how do you eventually get the hard money lender paid back if you're simply renting out the property and not flipping it. Would you at some point just refinance the property into a conventional loan? How could you do this if there wasn't a lot of equity, but the property was cash flowing over $300 a month? I've been running the numbers on houses as rentals and I have found some very good prospects, but I don't have the money to purchase the homes outright or the 20% down payment for conventional lending. Want kind of incentives could I offer to private money lenders to help me acquire rental properties? What would the structure of these deals look like? Thanks!

With Rates going up I would reach out to a couple hard money lenders and see if they offer loans for rentals. It is something that with these higher interest rates you can buy something and be in a great position to refinance after you fix it up. Run the numbers on the rate, the points you pay and the holding costs if you incur them. Rates are getting closer to the hard money lenders!
The McKernan Group4.957 Reviews
Website View Page
0 Reply
Preston Patterson
Rental Property Investor · Pittsburgh, PA · Member since 2022 · 22 posts · 12 votes
3y
@Peter Mckernan
Could you clarify for a newbie here. If someone doesn’t have the cash to put down for conventional loan, doesn’t the bank require some cash when refinancing? Like for closing and such?
0 Reply
Peter MckernanBusiness Member
Residential Real Estate Agent · Irvine, CA · Member since 2013 · 2k+ posts · 1k+ votes
3y
@Preston Patterson
Hard money is 20% down or maybe 15% down. So you will need that downpayment.
Bank will take money out of your refi if you are doing cash out and you will have to bring cash to the table for rate and term refi
The McKernan Group4.957 Reviews
Website View Page
1 Reply
Eliott Elias
Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
3y
If it helps you get in the door fast and easy with a rehab. If time is on your side i'd recommend getting in there with a conventional loan. You don't want to hold hard money for more than 6 months
0 Reply
Nate Sanow
Investor & Agent · Tulsa, OK · Member since 2016 · 1k+ posts · 1k+ votes
3y
Yeah hard money is definitely not limited to flips. What you described is a good option.
0 Reply
Eliott Elias
Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
3y
Yeah why not, just don't plan to use the money for more than 6 months.
0 Reply
Nate Sanow
Investor & Agent · Tulsa, OK · Member since 2016 · 1k+ posts · 1k+ votes
3y
Yes but most HML are 12-24 month so you have to have a refi plan if rental. Bridge loans are similar but might have lower rates than HML. Eg 9% vs 13%
0 Reply

Join the conversationCreate a free account to reply, vote on answers and follow this thread.