Today’s REI Classroom Lesson
Today, Blake Yarborough explains how a hard money loan doesn’t just have to be for rehab projects.
REI Classroom Summary
There are outside the box benefits and tips for using a hard money loan for a property that you don’t intend on rehabbing.
Listen to this REI Classroom Lesson
Real Estate Investing Classroom Show Transcripts:
Mike: Welcome back to the flipnerd.com REI Classroom where experts from across the real estate investing industry teach you quick lessons to take your business to the next level. And now, let’s meet today’s expert host.
Blake: Hello, this is Blake Yarborough with the Capital Concepts, this week’s host of flipnerd.com.
Mike: This REI Classroom real estate lesson is sponsored by theinvestormachine.com, FlipNerd’s private investor coaching program and your blueprint to investing success.
Blake: Today I’d like to talk about something that we use a lot with our clients that most people don’t think of, and it’s one of the things that helps separate us. It’s kind of thinking out of the box because we have so many products, and using them all in conjunction with each other, we can really do some fabulous things with financing. If you talk to a street corner mortgage guy, they say you can’t do a cash out or you can’t within a certain amount of time or you can’t buy more than a few properties at a time. Well, these are problems we overcome when we’re dealing with a hard money loans or private money loan.
For instance, most people just think of hard money lending for rehab houses, houses that need rehab. Now, that’s great because it maximizes leverage. But just recently we had a client buy 11 properties all at once. They weren’t all rehab. They weren’t all rented. Fannie Mae would probably give you a pushback, any local banks or portfolio lenders may not want to approve you in that situation because if the properties aren’t leased there’s nothing to offset their income. But with a hard money loan, we can close on that, we can close them all, and then refinance those off, over time, with different lenders as the houses are completed.
Another advantage of, in let’s say, that bulk loan situation. Instead of maybe the value, you weren’t buying them with 30% equity across the board, we can easily cross-collateralize with another property that you have substantial equity in and hopefully not put much money down. Maybe 10%, maybe none, other than your closing cost. The flexibility of these types of loans is really, really great. Also, as you may know, the timing. We can close extremely fast inside of a week. It’s done within a couple days. Two weeks we like to have.
But one of our favorite tools with a hard money loan is somebody that has a handful of properties and they run into a cash out seasoning requirement, or they just bought the property and there’s a six month seasoning requirement. That means the time you’ve owned the property before you could do a refi, before you do a cash out refi. Well, if somebody has a substantial amount of equity, we can close on that property, 70% on the ARV or appraised value, immediately get on that cash back, and that immediate is very important because sometimes you need to get your hands on the cash.
We can immediately do the cash out. And then where Fannie Mae had a rule where you couldn’t do a cash out for six months or certain limitations, at that point, after you’ve done the cash out with the hard money loan, we can then do what they call a Rate Term Refinance, and then just do a regular refi. And Fannie Mae has no seasoning requirement. You could do it the very next day and, a lot of times, we’ll have our clients out of those loans in 2 to 3 weeks, maybe 30 days.
So that’s a couple of little other uses that we really find useful and we do a lot with our clients, using the hard money loan in conjunction with other types of loan products out there. Once again, this is Blake Yarborough with Capital Concepts. Have a great day. Thanks.
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