Hard Money Vs. Prepayment Penalty

I have a bid on a property I plan to rehab and then sell. So turn around time is expected to be short. My choices are a hard money lender and paying the high points and rates. Or, is there any reason I can’t use a conventional loan and pay the prepayment penalty of 5% (for this particular lender) which will be considerably less than the costs of a hard money lender?

My mortgage broker says this lender will lend on appraised value rather than purchase price. I am buying the property at about 75% of as-is appraised value. We are dealing with fairly low figures (bid was $29,500) and I can finance most of the rehab myself. The after-repair value makes this a very attractive deal.

Would using the conventional lender and paying the prepayment be a sound plan? All you experienced rehabbers see any problems with it?

Thanks for your input!

Comments(6)

  • td3rd August, 2003

    seems to me with such low numbers, I would use conventional financing. I would also consider bringing in a money partner and then you would not have to worry about prepayment penalty.....

    Prosperous investing,
    td

  • 2000rock3rd August, 2003

    pserber,

    OR...maybe use YOUR cash advance lines on Your CreditCards...

    I have done this on LowerPricedREIs


    ....as always,


    GoodInvesting, Rocky

  • InActive_Account3rd August, 2003

    pserber,

    If time is not a factor then go the cheaper way.

  • lildell3rd August, 2003

    it probably depends on your projected holding time,

  • pserber4th August, 2003

    Thank you for all the great advice. It confirms what I was thinking. As 200Rock suggested, I was considering using cash advances in addition to the conventional loan. Having a money partner or two is something I will look for in future rehabs.

    My holding time is expected to be relatively short (famous last words). We will start marketing shortly after we begin rehabbing.

    Paula

  • andrewb7th August, 2003

    Make sure how much you can get from your card in the form of cash advances. It may only be about half of the available credit.

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