wholesale to buy and hold with hard money??

[Joe Butcher]

I started marketing to absentee owners a couple months ago. Have made a few offers but no deal yet.

Ultimately I want to be a buy and hold investor.

Lets say I got a house under contract and I thought it would be a good rental property for me. Could I use hard money to buy the property, do the rehab (if any) and then refinance that into a conventional mortgage?

How exactly does that work? Has anyone here done that? I have no experience with hard money lenders other than talking to them at REIA meetings.

If anyone can walk me through the process (if indeed this is a possibility) that would be great.

Thanks.

JB

[Shaun Reilly]

This is a pretty common strategy.

As Wayne was saying different lenders will do different things, but don't expect to get in for nothing no matter how good a deal it may be.

So pitfalls would include (I'm sure there are others I'm forgetting about):

- Besides the downpayment money needed add, in the scenario you have above, probably around $2K more for points and general closing costs.

- Be prepared to make your interest only payments of like $540/month if the interest rate is 12%, more obviously if the rate is higher.

- Most HML (though not all) HML will make you forward fund the renovations even if they will ultimately pay for it. So you will probably need to have access to ~$10K liquid for short amounts of time to make payments in between getting reimbursed for them.

- When you refi you will probably not be able to pull cash out so don't plan on that. If your recorded loan is for the purchase price and repair amounts you should be able to get that full amount as long as it appraises high enough to have at least 20%, though possibly 25-30%, equity still.

- Piggybacking on the last one if the appraisal isn't high enough you might have to bring the difference to the table to pay off the HML.

- (BIG ONE) You just might not get the loan! If that happens best case is the HML will extend you (probably for an additional fee) and you will be paying that higher rate until you can get out of it. Worse case is they just call the note at the time of the balloon and you lose everything.

Moral of the story is make damn sure you will be able to qualify for the bank loan BEFORE getting into the HML. Nothing is a guarantee but work with a good mortgage person and tell them exactly what you hope to do and get them to run a GOOD pre approval on you to make sure you are good, and if not exactly what you need to do to fix it beforehand.