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Profile picture for Eldowney7

Advice on Hard Cash Loans for Rehab properties

I've tried to get a good unbiased review on Hard Cash/ Fix & Flip loans. The only reviews are from financial institutions, so I question their sincerity. Any Advice from the experts not on the financial side of the business?
  • December 23 2013 - Rockville
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Answers (12)

Profile picture for AdrianChu
Hard money loans can be risky because they generally charge a lot of points/fees and have a high interest rate compared to conventional financing.  

If you currently own a home and have equity, consider pulling a HELOC, which is more flexible and usually has a lower interest rate.  Many banks and credit unions offer no-fee HELOCs.
 
That being said though, using hard money loans can still pencil out if the numbers make sense.
  • April 20 2014
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  • January 02 2014
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Do you have 25%, of the improved value, for the down payment on your next project?

Look into Fannie Mae HomeStyle Renovation Loans. Maximum Investor LTV is 75%.
  • December 23 2013
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Profile picture for Eldowney7
I currently have 2 properties financed. I would still be on active duty for the first few rehab projects. I have another year plus on my contract with the Air Force. My hopes were to start my first project in the spring of '14.
  • December 23 2013
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If your only source of income is flipping, it will be a problem.  You will need the income to qualify for the mortgage.  The biggest catch is that we currently limit the # of properties a buyer can have financed to 4. 
  • December 23 2013
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Profile picture for Eldowney7
Thanks Andrew. I didn't realize this type of financing existed. All my research leads me to hard money loans for Rehab-to-Sell Loans. I've done 4 rehab projects thru conventional home lending because these were houses I occupied. I'm looking at doing a career change (active duty military for the last ten years), and I want to get into this business, but I understand that getting the financing is the biggest hurdle. I'm confident in my ability to find the deals and contract the work. All of my properties are making me good money in the rental market, and I've walked many co-workers through the same process to help them make money. Now I'm anxious to take this on full time. My credit score is solid, but I worry that my lack of official experience is going to keep the door to financing closed.
  • December 23 2013
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Renovation loans do not have to be owner occupied, Investor Renovation loan programs exist.

  • December 23 2013
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You can obtain conventional renovation financing.  You don't have to get a hard money loan. 
  • December 23 2013
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Hard money loans are good for SHORT term...that's it. Are you looking to fix & flip or rehab a home to live in? Most hard money loans are going to have high interest rates and short terms with a ballon payment at the end. If you are in and out quick, then it won't matter. But, if you take too long renovating/selling your project, then you eat into your profits. Maybe you can find someone with the cash to partner with. They put up the money and you find & flip. At the end of the day you can split the profits 50/50. If you are successful a couple of times, then you can use your own money and keep 100% of the profits.
If you are looking to rehab a home to live in, then there are good renovation loans for that as well (for a primary residence). If that is what you are after, just reach out to someone like Andrew here for details on those loans.
  • December 23 2013
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Profile picture for SoCal Engr
a consumer perspective...

Would it help if I told you I had my escrow on a new construction by a spec builder held up by a hard money lender who decided to prevent closing on houses 1-thru-3-of-6 until he got the payoff restructured? If I told you I watched the spec-builder lose properties 4-5-and-6 to said hard money lender? Who then froze all construction on those 3 houses until the buyers of those 3 houses (who were already in escrow with agreed-upon-prices) agreed to substantial bumps in sales prices?

I've only had one close encounter with a hard money lender, and I was very glad that it was as an incredulous bystander. Houses 1-thru-3 got to close on the original terms (after a slight delay), houses 4-thru-6 got nicked for an extra 10%-15% per house, and the spec builder got bupkis.
  • December 23 2013
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Profile picture for Eldowney7
For the purpose of financing a rehab project. I understand these type of loans are great for getting cash in hand to both finance the deal and finance the rehab. The negative with these loans (from what I am reading) is of course the hi interest rates.

The other aspect of these that seems questionable to me is that they are saying they are fairly easy to obtain. It would seem to me that a hard cash loan on short notice wouldn't be a simple venture.
  • December 23 2013
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Why do you need hard Money?
  • December 23 2013
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