Most in the real-estate investment game consider Texas Hard Money Loans to be best suited for house flips, but what about long term rentals? Why would you want to use hard money to buy a rental property? Since hard money is supposed to be paid off in a handful of months, it’s easy to assume this type of financing isn’t meant for long term investments.
But hard money allows you to finance distressed properties based on their worth after their repaired. With hard money you can pay nothing for your next rental using a simple strategy: buy a distressed property, raise its value, rent it out and then refinance the property at the new higher value.
Using hard money if you can raise a property’s value enough through repairs, then refinancing will allow you to pay off your initial loan and maybe even earn a profit.
It might be helpful to illustrate how such a strategy would work with some specific numbers:
Say there is a disused house going for $70,000. Getting the property up to a livable standard will cost about $15,000. The first step is to take out a hard money mortgage for $85,000. After a few months of repair work, and after finding a long term renter, you are ready to refinance.
If your rehab raised the value of the rental property enough, refinancing should pay off your initial loan.
Here’s how the numbers work in this case:
Cost of the Property = $70,000 Purchase + $15,000 in rehab
Say you refinance at 80 percent of your rentals new appraised value of 125 K=
100 in refinancing – 85 K + interest payments= You secured a long term rental without spending any of your own money.
Here’s a simple formula:
• Hard Money= Purchase price + Rehab
• amount in refinancing – hard money= a free property
You might wonder if you can use another less expensive type of loan to execute the above strategy. The key to this method lies in buying a distressed property at a steep discount, then refinancing the property at a higher value.
Other lenders and banks in particular don’t offer financing for distressed properties and even if they did in the above case you’d likely only get 80 percent toward the initial purchase of that 70 thousand dollar shack, so in the end you would have to pay 29 thousand dollars out of pocket.
With hard money you can buy dilapidated rentals, boost their value and then refinance so that in the end you pay nothing out of pocket. Not spending any money, getting a steady source of income, now that’s the dream isn’t it?
So consider using hard money to buy your next rental investment.
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis Dahlberg Broker/RI/CEO
NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters and 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.