Investor · Columbus, OH · Member since 2015 · 70 posts · 30 votes
Hello BP. I'm in the process of structuring my first BRRRR and had a question about using hard money. Would HML's be typically willing to finance ONLY the rehab portion of the project (i.e., I buy the property for cash but use a HML just to rehab it)? If so, are there any major downsides to doing this? Would the following be examples of typical downsides to this strategy:
Real Estate Broker · Indianapolis, IN · Member since 2014 · 3k+ posts · 2k+ votes
9y
HML's will potentially fund both but they're going to want you to have some skin in the game or some serious equity.
You're going to need multiple exit options to get this funded. Can it be sold to an end buyer as a home? To a less sophisticated investor as an investment? Can you move into it as a primary?
Hoping you're going to be able to do a cash out refi when you're paying 12% interest and have an 11 month term sounds like a recipe for sleepless nights.
Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
9y
Generally HML is too expensive. I would not enter into any HM loan unless I was positive I could refi out within a few months. Now, if you intend to flip rather than buy and hold HML can be a great benefit as long as you know the numbers!
Investor · Columbus, OH · Member since 2015 · 70 posts · 30 votes
9y
@John ThedfordThank you. Yes I agree. When I ran my numbers, it would take 17 months of my property's cash flow ($350 p/m) to pay off the HML ($6k). The only scenario I see it being worthwhile pursuing such a trade-off is if the cash-out refi of the property returns more than 100% of the invested cash. Otherwise the investing strategy just going to be a money pit for a long time.