Re: Should I use a Hard Money Loan for Rehab? - Posted by Ken (Fl)
Posted by Ken (Fl) on October 27, 2003 at 07:38:37:
If you have good credit and a good credit card company you may be able to do what I do.
My credit card company offers a cash advance for 6 mos. at 0% with a $50.00 service charge. The payments are $15.00/mos. until the 6 mos. is over. I borrowed $8,000.00 which was equal to what I could afford in cash for that house. That way if trouble came up I could still payoff the credit card. I rehabbed and sold the house in 3 mos. I carried the $8,000.00 for the remaining 3 mos. leaving the proceeds in a savings account to gain a little bank interest. I paid off the card in full at the end. It was the best loan I have ever had for a rehab. Total expenses were $50.00 service charge.
Randy,
Hard money is extremely expensive for rehabs and IMHO should only be used by experienced rehabbers who have their “team” in place and can get in and out in a pre-determined period of time. From what I’ve seen, inexperienced people ALWAYS guess low on what it will take to rehab a property and ALWAYS guess high on what it will sell for and they seldom include holding costs or contingency money in their estimate of costs.
In short, NO, don’t use hard money if you can use bank money (with all due respect to Jim(MD) I’ve never seen a pre-pay penalty but, when I use bank money, I set it up as a commercial mortgage where there’s a little more lee-way and I can “haggle” over the terms a bit). Even better, if you lack experience, don’t start with rehabs as they are the hardest way to make money in the business.
All the best, Lyal