Ready to use Hard Money? Read This!

Are you using Hard Money to purchase / renovate your property? It is a good option for a number of reasons. I have used Hard Money to purchase and renovate a number of my rental properties (and some flips) and I work with investors who use this medium to reach their goals. 

The one mistake I have seen people make repeatedly is obtaining a hard money loan without the "get out" plan. Hard money interest is much higher than traditional. The best case scenario is to have a refinancing bank standing at the ready BEFORE you get that hard money loan. A lot of things can happen between now and whenever you finish your renovation and time to refinance. You really don't want to lose the property (especially if you renovated it) to the bank because of lack of payment. Most hard money lenders I have worked with have a 6 month loan with the option to extend 1-2 times for 1-2 months. Each extension required a sizable "fee" of $500+ (I would look into the terms carefully with hard money lender before proceeding).

My advice: Shop around with refinancing banks and tell them your situation. Find one that will refinance you with your current credit, savings and property valuation. Only obtain that hard money loan once you have a bank that will work with you on the back end. You may also want to discuss with the refinancing bank your renovation plans and expected home value BEFORE you start to ensure you don't 

1) over develop 

2) values are in line with their value numbers 

Have your agent run comps in the area with features you expect to include once your renovations are complete. Some banks would even allow you to use their appraiser to value the property and the "after" renovation estimate and tentatively sign off on approving your refinance (contingent on your finances, credit score and renovation plans). Using their appraiser is important because for THAT bank, it is the only appraiser's opinion that matters.

Good luck and until next time!

Maria