Hard Money Refinance

[Pete Perez]

Hello BPers,

I am trying to find the right place to ask this question, so I apologize if this is the wrong forum. I am stuck trying to understand the mechanics in the Refinance portion of "BRRR" method. I understand that usually a private, or hard money lender is used to purchase the house, rehab costs may or may not be included, but how exactly does the refinance work?

Do you just figure out what you owe the hard money lender, and have a bank put the property on a conventional loan for the amount you owe the hard money/ private money lender? I don't quite grasp the mechanics of that situation. 

Thanks and I look forward to continue learning here on BP!

[Darren Eady]

If you hold the property for at least six months to a year, the bank will most likely use the appraised value, rather than your purchase price + rehab costs to determine value.  With this being the case, you'll want to plan on the bank extending a loan of about 75% of the after-repair-value of the property.  Hopefully this is enough to pay back your hard money lender and your cash to rehab.  Good luck Pete!