Hard Money for BRRRR - downsides?

[Ishviyan D.]

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:

- rehab amount falls below minimum loan requirement 

- not being able to refinance / use deferred refi since I'm using a loan for the rehab vs. cash

- ARV appraises less than expected, and hence presents a challenge in repaying the HML solely through a cash-out refi

- extended holding costs through being unable to refinance until the required seasoning time period ends (e.g., 6 months, 1 year)

Just trying to get an idea about what obstacles I should anticipate if using this strategy. Thanks you. 

[Ryan Dossey]

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.