What does a Hard Money lender do in a BRRR?

[Trevor Bragg]

Hello,

I have heard so many things about BRRR investing, and it is something I hope to do in the near future. I am brand new to Real Estate, and I don't fully understand what the Hard Money Lender loans in the process. Do they only loan the down payment? Or do they buy the entire property and they are the loan? Do they typically pay for the rehab costs as well? How does the interest rates work? Does the interest begin right away or after a certain period?

I know that's a lot of questions, so maybe if someone was able to break down a deal and what the HML does in the process would be awesome. I'm sure it changes for different lenders, but what is the normal rates and things paid for are my main questions.

Thank you!

Trevor Bragg

[Nicholas Lohr]

By nature a property in a BRRRR deal usually needs a good amount of work. Hence the 2nd "R" in BRRRR. And sometimes the property needs so much work that a conventional lender like a bank won't touch it leaving one to purse the hard money lender option.

What usually happens is the investor takes the hard money loan, rehabs and rents the property as fast as possible, and then refinances with a bank because a bank gives much better long term loan terms.   Once a property is all fixed up and stabilized is when a bank loan is obtainable. The hard money lender is like a bridge to get to that long term and more favorable bank debt. Hard money loans have higher interest rates than banks. 

As far as your specific questions, all of that can vary. Usually YOU pay the down payment and they lend the rest.  And that can include the rehab costs as well, but not always. It really depends on your terms with the hard money lender. And yes the payments usually begin right away.