If I use hard money to purchase, and rehab a property, and it is sitting on the market for a few months, what exit strategies can I use?
You can try to find a bank or private money to refi the rehabbed house now that it’s worth more. If you get into it and fix it cheap enough, you might be able to get enough money to get out of hard money. If you do well enough on the numbers, you can sell it for a cheaper price which should help it sell faster. You might be able to market it to an investor as a turn-key property.
You investors who use hard money (private money borrowed at a very high rate of interest and with fees charged on top of that) are braver than me.
I would prefer to scout around and find a free-and-clear fixer property and get the seller to carry a short term low-interest loan until the property gets fixed up and can be sold.
In my opinion hard money deals are not for beginners. You can lose your shirt if the property can’t sell or you can’t find a bank that will refinance.
It sounds workable in the guru investment books, and it used to be workable when property was going up and up, and everything sold.
I would exit out of the hard money aisle and do my shopping in the owner carry the loan aisle. That’s just my conservative opinion.
Furnishedowner
Do you mean that the property is on the market for a few months after rehab? If the numbers worked on the deal, you should be able to list the property at under market value for a quick sale. fdjake, recommends a 30 day listing with a broker to get it on MLS and sold. If it is listed and not selling it is probably overpriced.
Furnishedowner is right! Not only is hard money not for beginners, it can even be dangerous for experienced investors. You’ve got to have what we like to call a ‘‘no brainer’’ deal in order to be willing to use these high interest rate funds.
If you need to refinance to make the deal work once it’s on the market, then the deal IS NOT GOOD ENOUGH. Don’t use hard money for this! I’m not saying that you shouldn’t refinance a deal where you use hard money (I’m doing it right now to lower costs), but if it’s something that Has to happen to make your deal work then you’re flirting on dangerous ground.
Good luck!
The same exit strategy you had when you bought the house.
Refinance with private money.
Refinance with commercial money (banks).
Sell the property for a lower price and take a loss.
If you’re using hard money, I’m assuming that your credit is kind of messed up in the first place. I don’t know if hard money lenders will put a foreclosure on your credit, if they do, it stays on your credit for 7 years. They usually will not lend less than about 50% LTV, so they can’t come after you for a deficiency judgment.
You might want to get an appraisal before they take the place back if you live in a recourse state.
I have seen may comments on here regarding the use of hard money and the general impression that I get is that most investors are under the impression that you cant refinance an investment property using conventional financing, ie Fannie / Freddie.
Let me be the 1st to say that this is purely a myth. Here is the basic skinny. I am familiar with many lenders that will allow you to refinance an income property 1 day off the market. It must be off the market as they dont want to consider property to make a loan on, just to know for sure that its going to payoff soon, so hence the 1 day off the market rule.
There are 2 categories this will fall into. if you have 4 financed properties including this refi. or less then your max cash out or rate and term refi. LTV is 75%
If you have between 5-10 financed properties including this one then your max. rate and term LTV is 70%, there is no cash out allowed once you have 5 or more financed properties. However you can resolve that issue with a combo hard money then conventional rate and term refi for those that are equity rich or own them free and clear.
Oh, if you have owned the property for less than 6 months or 12 with some lenders, then they will base the LTV on your original purchase cost plus any improvements that you can prove by way of receipts. Sounds like you should easily be able to do that? 12 months or more and they will base it on the appraisal.