I’m interested in knowing what experienced investors might contribute here. The situation is hypothetical but with real world examples everywhere I’m sure.
The property: multi-family apt. or commercial property, established, verifiably stable location, generating income, can be had for less than market value
The basic thought for the deal: hard money loan to purchase the property then refinance using the income and any equity in the property as collateral
The buyer: good credit, fair credit or no credit (could be anybody really), maybe with bankruptcy, employed but not earning enough to throw much if any into the deal
Questions:
would a hard money lender loan up to 75% of appraised value
would a hard money lender ever defer the first month interest payment
would a hard money lender accept the equity and income from the property as collateral on the front end of the deal if the refi was a sure thing
Bigger Question:
What other kind of creative financing strategies could be employed here?
We see these types of situations all the time. It seems to me that the one thing that is usually missing is the immediate cash flow & equity in this type of property. I’m really curious as to how that could be used to facilitate a creative deal structure both with a hard money loan and with a refi. I’ve talked with several mortgage brokers that like the refi part of the deal. Now I’d like to know what the front end lenders think about it.
Any other thoughts on this type of deal that I’m overlooking?
Your question has been answered in other posts recently. Two hard-money lenders weighed in with their criteria for lending.
What you are describing won’t work. The buyer has to have skin (money) or lots of equity in the deal. Otherwise the risk in unacceptable to the HML. The buyer could default and the money be gone.
would a hard money lender loan up to 75% of appraised value…Probably not…You can ask around though
would a hard money lender ever defer the first month interest payment…Probably not but you can ask around
would a hard money lender accept the equity and income from the property as collateral on the front end of the deal if the refi was a sure thing…This one I highly doubt…
Bigger Question:
What other kind of creative financing strategies could be employed here[/i]…Find an angel investor (aka sucker)…
65% ltv would be more realistic and only if hml can see a clear way out in regards to getting the loan paid off within 6~12 months. As for skipping the 1st months payment, it is possible if it and everything else (purchase price & rehab and that payment) fits within the 65% of arv.
my hard money guy would have a problem with not collecting interest the first month, because they always want to see some reserves,I can get into some deals with very little of my own cash,but they want to see some reserves
Given that the borrower has no skin in the game, 75% is an unrealistic margin of safety for the hard money lender. The only way that a hard money loan would come in to play here is if the property is a REALLY good buy (65% or less). If the buyer is not putting anything down, a creative solution might be where the hard money lender becomes a partner.
Hard money loans can be a great way to finance a real estate investments but the loan application process can be quite difficult from traditional bank loans.
If you use transactional funding instead of a hard money lender if just much faster. The criteria would be that you are going to immediately refi after the purchase. With transactional funding you would buy the property in one of your LLCs or personal name and then you would sell it to your other LLC using your refinance lender.
For example: The property is for sale at $500,000. It’s worth $1M. You buy is for $500,000 plus closing costs which can all be paid by the transactional funder. Then you sell the property on the same day to your other LLC for $750,000. This wraps all your rehab costs and closing into the mortgage with your end lender but you’re still are under the 75% ARV.
There are no credit checks or income verifications with transactional funding. The crux of the deal is tied to the fact that you have an immediate exit strategy in place.
Why doesn’t everyone get away from hard money lenders? That is the absolute worst case scenario of borrowing money.
Even a personal loan is preferable to that.
If you are in the position where you are having to use a hard money loan, why not just get your “numbers” (income, credit score, accumulate a few decent tax returns) up so you can qualify for better loans.
Ever heard the term “loan shark,” as in “pay back or get your legs broken?” You might as well call it the same thing.
The only reason I would ever use a hard money loan is if someone were holding my mom ransom.