Hard Money Loansfor buy and hold investors

understand how hard money can be an option the buy and hold investor

what is a hard money loan why they might be a good option pros and cons of using hard money for rentals

Lesson

Agenda:

What is a hard money loan?

It’s easily described as obtaining quick money for individuals or businesses for

the quick purchase of real estate

The birth of this came from individuals having a difficult time to get financing

from a bank…but still needed cash quick to close a deal

Typically, hard money might be thought of as a flipping strategy

Because flipping is usually a quick process and hard money loans can get costly the longer you hold the money

You find a deal to buy, renovate and resell. Your timeline is 3 months to have it

done and hopefully sold in a month because you’re in a hot market

So, you get a hard money loan that may cost you higher interest rates and shorter terms…but you plan to be in and out of

the deal in 6 months

So you can withstand paying a little more for holding costs.

This doesn’t sound so bad for the flippers…

What about the buy and hold investor?

While hard money might not be the #1 option you’d use to finance a rental

property, it can be done

For the buy and hold investor…

We have members in our community who are using this strategy to buy

rentals

For the buy and hold investor…

So what does the strategy look like for the buy and hold

investor?

So, let’ use Paul as an example. He found a property that was pretty

distressed and listed well below market value.

However, he ran into issues with getting financing from a traditional bank.

But he didn’t let that stop him.

Because the property is a great deal in a great location he knew that using the

hard money strategy could work.

You may hear it often referred to as the ‘BRRR’ strategy in the real estate

investing world

Buy, rehab, refinance, repeat

You buy the property and complete the necessary rehab in order to force

appreciation on the property

You wait the required time (6+ months) that you need to hold the property and

then…

refinance the deal into a conventional loan with a bank

Once you refinance the property (with better rates and terms) you can pay off

your hard money loan

And just like that you’ve used this strategy as a way to acquire a property

quickly and at a great price

You’ve gained the knowledge and you’ve started to save…however….

What you need to know about

Hard Money

Pros and Cons

Pros

Can allow you to finance a deal when you can’t get financing from a bank

Pros

Can allow you to potentially get an even better deal (if you’re able to pay cash using the hard money)

Pros

Less red tape in order to obtain the money

(no income verification, credit, etc)

Cons

Hard money has high interest rates (8%+)

Cons

HM has short loan terms

Cons

HM can have higher fees charged by the lender

(2% point 10% interest rate)

While it may not be the best option available for buy and hold investors

Conclusion

It is an option and can work if you’re able to refinance out of the short term, hard money loan.

Conclusion

Just be cautious because the fees and high interest rates can eat into profits very quickly if

there is an unexpected turn in timeline

Conclusion