How is everyone funding the buy and rehab before the refinance exists?

Hard money on three of mine. The rate is the part people quote and the part that matters least. Two points at closing on a 150k loan is 3,000 gone on day one no matter how fast you finish. Then the draw schedule, where you pay for the work before you get reimbursed, so you need working capital anyway. Then the inspection fee on each draw, mine were 250 a visit and I had five.

What actually hurt on my second one was the term. Nine months, and my rehab ran long, so I paid an extension fee to get three more. Ask what the extension costs and whether it's automatic before you sign anything, because when you need it you have no negotiating position.

@quarry, this is the stuff I keep missing in my model. I've been building a first-deal cost sheet for months and my carrying cost line was just interest times months.

Adding it up from your post on a 40k rehab and a 150k loan: points 3,000, draw inspections 1,250, and if you need the extension call it another point. That's 5,750 of cost that has nothing to do with the interest rate. Against a deal where I hoped to leave 10k in, that's most of the difference between fine and not fine.

I've been wondering about this and never asked anyone directly: if you buy all cash, can you refinance the next week, or do you have to wait? I've seen the word seasoning thrown around and I don't know whether it applies to a cash purchase or only to a cash-out on something you already had a loan on.

@compass, there are programs built for exactly that situation where a recent cash purchase can be refinanced sooner, and there are also plain cash-out programs with waiting periods measured in months. Which one you qualify for depends on the lender and the program, and the rules move, so the only reliable answer is to ask a lender for the current requirement in writing before you buy with cash expecting a quick refinance.

On the funding question itself, from the build side the draw schedule is what decides whether the job runs on time. My subs want progress payments and my lender wants completed work inspected. That gap is real money out of your pocket for two to four weeks at a stretch. I now negotiate the draw milestones before closing and I match them to how the trades actually invoice. That saved me more than shaving half a point off the rate would have.

I'd stop comparing rates and compare total cost of capital over the actual hold.

Take a 40k rehab and a 145k purchase, seven months from close to refinance funding. Hard money at 11% interest-only on 165k advanced is roughly 10,600 of interest, plus two points at 3,300, plus draw fees, so call it 14,500. Private money at 8% flat with no points on the same balance is about 7,700. All cash costs you no interest and no fees, and the cost is the deal you didn't do with that money for seven months.

So the ranking depends on whether you have a second deal ready to go. If you do, cash is the most expensive option on this list and it doesn't look like it. If you don't, cash is free and everything else is a fee you paid for nothing.

Small multifamily here and the wrinkle is that lenders treat two to four units differently from a single-family, and five plus differently again. My last one was a tired triplex and the bridge lender wanted a rent roll projection and a market rent study before they'd size the loan, which a single-family bridge lender never asked me for.

@ledger's point about the second deal is the one I'd underline. I used cash on my first because I was scared of a hard money term I couldn't extend, and it took eleven months to get it back. Eleven months of not looking at anything else.

Before I write a check on a private loan, the thing I ask is what the refinance looks like and who has confirmed it. Most of the deals that come to me have a well-built rehab budget and one sentence about the exit.

If you're the borrower asking a friend or family member for the money, expect that question, and have a lender's written parameters rather than a rate you saw quoted. Also settle in advance what happens if the appraisal comes in short and the refinance only covers 80% of what you owe them. Whether your private lender records a lien and what that means for your refinance depends on your state's recording practice and on your refinance lender's rules, so a real estate attorney in that state should paper it. Handshakes between people who like each other are exactly where this gets ugly.