First Deal - Should I go Hard Money?

[Matt Lawton]

Hello, I have been wanting to get into real estate since last year. I have been investing solely in stocks for years and completely overlooked the power of leverage. I have never purchased a property before. I was looking to buy a property in Phoenix and an opportunity to buy a duplex for about $30K under the market rate of comparable units. The seller wants to close in 7 days because they have another deal that they need money for. My lender requires an appraisal and said it would take 30 days to close. The seller recommended a hard money lender that could close in 7 days at 7% with 10% down. Do you think this would be a wise move for a first time deal? My first thought is yes and then to refinance in a year. I wanted to get the thoughts of someone more experienced because I am a complete newbie. I appreciate it.

[Wes Blackwell]

@Matt Lawton

The fundamental issue here is that this doesn't allow for a proper inspection of the property. Have you seen the inside of the units? Are you sure there aren't any Phoenix building code violations currently encumbering the property? Or that the tenants are cooking meth? Or living in a mold infested property? Or that the units are legal and built with building permits? Or that the tenants are actually paying rent? Etc.

Essentially, you're banking on these units being financeable with conventional financing after taking ownership, but don't have the protections in place to ensure that is the case. 

I know my cautions might seem to raise the alarm and I don't know all the details, but these are issues I've seen with properties before and every nightmare scenario you read about on here usually could've been avoided with some due diligence.

You could try to get the seller to agree to a warranty that survives the transfer of ownership, but they probably won't be too keen on doing that.

Another question: Is this property listed or off-market? Does the seller have other buyers lined up? Trying to determine if the tight timeframe required by the seller is necessary. It would seem odd to me if the seller lined up another deal without having this one listed. Keep in mind that the seller has to be getting a discount on his next property greater than the $30k discount he's taking to sell this property. 

Another idea: Tell the seller to use a hard money lender on the deal he's trying to buy LOL.