Private Money Lenders vs. Hard Money Lenders

I am a newbie real estate investor. My question is what is the best entity to use to wholesale properties to generate quick cash to eventually buy and hold rental properties ( single family and multi family units) . What are some of the qualifications that hard money lenders look for in order to invest in a individual or company. And is it possible to use hard money lenders to buy and hold properties…

I don’t much about wholesaling. But I’ve seen people use hard money or private lending to finance a rehab & rent project. Then they did a refi to more favorable terms after the repairs are done. If you look to the left of this site, you’ll see a Hard Money section. Click on that and there’s a litst of various lenders. Find the ones that operate in your state and click to see their requirements. You won’t know for sure what’s required until you give them your info. It’s an expensive option. If you can raise money via wholesaling, birdogging etc., and you have good credit, you could have better terms available to you. Good luck.

Do not use hard money for buy and hold. The costs will kill any cash flow. It’s possible to purchase with hard money and then refinance after the fix up to an adjustable rate mortgage for rentals.

Hard money is very expensive and it is short term money.

The only possible reasons to use hard money in a buy and hold is if you buy a property that is in such bad condition the banks won’t loan on it. You buy it with hard money, fix it up to the point the banks will loan on it, and then you refinance it.

Or if you find a screaming deal and the seller must have cash immediately and there isn’t time to finance a traditional mortgage. Again, you refinance out of the hard money as fast as you can.

Hard money not only has a high interest rate, but it has steep loan fees to set it up. Hard money should always be your very last option.

Private money lenders come in 2 basic types. Your Aunt Minnie who loves you. And private investors, such as doctors, who want more interest than the bansk will pay them. Either way, you are likely to only get a couple of years with a balloon payment, and generally interests are a couple of % over a traditional mortgage.

Aunt Minie doesn’t realize you are supposed to be qualified, but the doctors are going to want to see both some good figures and a track record before they lay their money on the table.

Tator, I see from looking around that you are right to advise hard money as a last resource. It seems very expensive. If I were considering holding a property for less then six monthes, are there any more traditional loans that are OK with such short terms or the pre payment of longer loans. Or would the pre payment of the entire loan cause lenders to refuse additional loan on future properties?

Also, LoriK,

purchase with hard money and then refinance after the fix up to an adjustable rate mortgage for rentals

Would an adjustable rate mortgage be required for the conversion from hard money to a more traditional mortgage ?

Thanks for your time and patience

   Definitely keep hard $ to short term, another long term loan you may look into is a 30 yr. fixed I/O. I've putting my longer term properties in this. I like it because it will lock the rate for 30 years and I pay interest for the first 10 years and then it goes to P&I the last 20 years. 10 years is typically long enough to refinance or sell the property.
Would an adjustable rate mortgage be required for the conversion from hard money to a more traditional mortgage ?

It would not be required. However, it will be a lower rate than a fixed rate mortgage.

I never take adjustable rate mortgages, so I am not a big fan to start with.

I really do not think this is the market to take an adjustable rate mortgage. It’s very unlikely to go down, so the only way it is going to adjust is upward.

Mortgage rates are good now. Lock them in for a 20-30 year loan.

I have taken a mortgage as short as 15 years because there was a real difference in interest rates and origination costs, and I saved a ton on interest. But the best way to go if rates and costs are similar is to take out a fixed 30 year mortgage. If you want it paid off faster, then you send a little more with each payment.

Always ask if there is a pre-payment penalty before you even apply for the mortgage, and verify it again before you sign the documents (which you are going to read VERY carefully before you sign).

If you decide to sell in 6 months, you simply sell and pay off the mortgage. If, by any chance, you can’t sell, or you change your mind and decide to hold, you have good long term financing in place.