Can anyone tell me if it’s a good idea to use hard money to purchase a rental property ( 2-4 units) instead of bank financing? Then refi in a few months for a better interest rate? I’m new at this but I’m learning a lot by reading books and browsing this site. My FICO is 680 - 700, I own a home with little equity and have only $3,000 I can spend. Thanx
I’m missing something in your strategy. How are you going to buy a multi-unit property with bank financing and only $3,000 down? With the tightening of lending over the past few months, this is nigh an impossibility, even if your FICO was stronger.
Next, suppose you could purchase this with hard money. You would be spending so much on interest, points and fees, this would be impractical to waste this money, then find out you could not get the bank financing and lose the property. (actually your hard money lender would never go for this loan, as he would be getting stuck with the property.)
Like I said in my question. I wanted to see if I can secure a property with hard money first. This would actually be about 60% of a ARV. If I can get a property cheap enough whether it needs repairs or not. The equity in the property should be there. Isn’t this the strategy that rehabbers use? They find a propert in need of repairs and get it cheap. Buy it with hard money and then reinance it with a loan with better financing. I realize some sell them but if not, they refi to help their carrying costs. Well now I’m confused even more!!! Thanx a lot!!! hee hee!!
In order to refinance, you need to have sales. Most appraisals are in some way based off RECENT sales. Just last week Ditech dropped the LTV on a HELOC I applied for to 85%, and this was for a primary residence.
You need to aware of lenders’ seasoning requirements. Different lenders have different rules. For example, if you purchased the property within 12 months of attempting to refinance it, some lenders will base their refi loan amount on the purchase price (+ rehab work you can document), not the appraised value.
Like I said, different lenders have different rules. I have seen some recent exceptions to seasoning requirements, but I am not sure if they apply to investment properties. I suggest you find a good broker in your state to research the details before you get started.
Take care,
Steve
Thanx. I appreciate it :cool
I just did this exact deal. Purchased Duplex with Hard Money, and am now in the process of refi with Coldwell Banker. It has worked great so far. I bought right and paid heavily in points to do it with no money down. It can work, just be extra carefull that you don’t end up with a loan at 14% that you can’t get out of. Make sure that you get the HML lender to record deed really fast, and you have a Broker ready to refi even faster.
Just remember that everything costs double than what you think.