Hard Money Financed Deals: Ready to Rent Vs Fixer Upper

[Siddharth Shastri]

Hope Everyone's having a splendid weekend !! 

I found two properties that I'm interested in as investment properties, both SFR's, approx. 200k and 1500 sq.ft. range:

FIRST PROPERTY:

• 3B/2.5Ba, Ready to rent, No repairs needed, Asking Price: 212k
• Nearby properties(~ 3000ft radius on Zillow and Redfin) selling for: 220k - 270k
• Estd. Rental Value: $1700 - $ 1900 p.m.

Hard Money Calculation (Strategy to put 12k down and get HML for 200k. Refinance through conventional 20% down payment loan in 6 months)

• Loan Amount : 200k @ 18% Interest (12% + 6% ), 6 months duration
• Monthly Interest Paid to HML (Hard Money Lender): $3000
• Total Interest Paid in 6 months:                                   $18,000
• Rental Income in 6 months ($1900 p.m.):                    $11,400

After 6 months when I go to refinance:

• I'll be able to get financing for only 80% of the appraised value of the house (~ 240k) = 192k
• Total Out of Pocket Expenditure to Own House after 6 months
  • Downpayment (12k) + HML Interest (18k) - Rent (11.4k) + Balance Owed to HML (200k - 192k = 8k)
  • Total Expenditure = 12 + 18 - 11.4 + 8 = 26.6k

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SECOND PROPERTY:

• 4B/2Ba, Fixer Upper, Asking Price: 180k
• Nearby properties(~ 3000ft radius on Zillow and Redfin) selling for: 225k - 280k
• Estd. Rental Value: $1800 - $ 2000 p.m.

Hard Money Calculation (Strategy to self fund the fix and get HML for 180k. Refinance through conventional 20% down payment loan in 6 months)

• Loan Amount : 180k @ 18% Interest (12% + 6% ), 6 months duration
• Fixing Costs:                                                               $ 25,000
• Monthly Interest Paid to HML (Hard Money Lender): $2700
• Total Interest Paid in 6 months:                                  $16,200
• Rental Income in 6 months ($1900 p.m.):                   $12,000

After 6 months when I go to refinance:

• I'll be able to get financing for only 80% of the appraised value of the house (~ 240k) = 192k
• Total Out of Pocket Expenditure to Own House after 6 months
  • Fixing Cost (25k) + HML Interest (16.2k) - Rent (12k) + Balance Owed to HML (200k - 180k = - 20k due to ARV higher than purchase price )
  • Total Expenditure = 25 + 16.2 - 12 - 20 = 9.2k

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I'd like to know what you all think of this. If there are any flaws in this analysis (Hard Money Lending, Refinancing the Property after 6 months etc. ), please feel free to point them out. I'd be happy to get your inputs and make a winning strategy !! 

Best,

Sid

[Andy Collins]

Let's just look at house #1, there is no reason at all to go hard money,,this house can be financed as is (since no rehab is needed),,why add the extra expense (say 4 points, plus the interest, plus the cost of an additional close),,,,then refinance.

Hard money lenders (or the ones I've dealt with) normally loan 70% of ARV,, banks will probable loan 75% of what you pay for the propery,,,there is no advantage to using hard money unless you can't qualify without the rental income.

Your buying at $200k, bank would loan you $150k,,go the hard money route and they would loan you no more than $175k, and you would probable spend $15k in extra money

Hard money would be used if you are buying a house for $60k, spend $15k to rehab, and it would then be worth $100k,,,,the hard money lender would loan you $70k, you would bring closing costs plus $5k of rehab to the table at closing,,then you would later refinance based on the $100k value (assuming appraisal agrees on that).