I&#x27;ve Received a golden egg and I am unsure where to take it.

OP

Member since 2021 · 9 posts · 6 votes

4y

Hey guys thank you for the input and advice. I am curious as to why this is not a good deal. From my understanding, most hard money lenders are going to give 80% LTV of a home with a 12% interest rate. My lender wishes to give me 100% of the purchase price of the home and asks for 10% of the purchase price while I find other means to rehab the property. I.E home purchase is $50,000 lender wants $5,000 after re-sell. Most of the homes I am going to be rehabbing will be less than $100,000. Let me know what you think.

Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

4y

Originally posted by @Tyler Demeter:

Hey guys thank you for the input and advice. I am curious as to why this is not a good deal. From my understanding, most hard money lenders are going to give 80% LTV of a home with a 12% interest rate. My lender wishes to give me 100% of the purchase price of the home and asks for 10% of the purchase price while I find other means to rehab the property. I.E home purchase is $50,000 lender wants $5,000 after re-sell. Most of the homes I am going to be rehabbing will be less than $100,000. Let me know what you think.

what your not describing is the APR.. IE is this a loan at 10% per annum or 10% of the loan amount due in 6 months.. if its the later that equals 20% interest annually and if you add in another 5% of loan amount if you go long ( which can happen of course it gets worse)

if its 10% per annum and no points and 100% then yes that is a very nice deal.. if you go over 6 months then does the rate drop to 5% per annum or is it 5 points.. ? and then it would be 15% per annum again not terrible but not great or Golden as you say.

So thats why you getting the replys you are your not being specific enough on the terms.

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4 Reply

OP

Member since 2021 · 9 posts · 6 votes

4y

Jay,

Thank you for the reply it makes me happy knowing that these forums do reach people all over. The lender I am speaking of is offering 10% due at 6 months if not done with the project then another 5% after another 6 months if not finished with project so 15% annually. This is the first lender I have crossed paths with and he is a close partner of my real estate agent. Perhaps I need to do some more research and understand my loans better. Thank you guys for the input.

Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

4y

Originally posted by @Tyler Demeter:

Jay,

Thank you for the reply it makes me happy knowing that these forums do reach people all over. The lender I am speaking of is offering 10% due at 6 months if not done with the project then another 5% after another 6 months if not finished with project so 15% annually. This is the first lender I have crossed paths with and he is a close partner of my real estate agent. Perhaps I need to do some more research and understand my loans better. Thank you guys for the input.

ya your not getting it.. you should for sure do a little more research on what APR is and how to calculate it..

lets use sample numbers to help you here.

100k 10% apr = 10k if you pay him / her back in 6 months you owe half of 10k or 5k total that equals 10% per annum.

If he / she expects 10% in 6 months on 100k IE 10k then your paying 20% interest .. And if they expect 5% more when you over does the 10% still accrue or is it simply 5% flat fee or another 5k .. so if the loan went 1 full year you owe 15k or 15% APR..

However what many on BP miss in this whole thing Is it does not matter what other lenders are charging simply because your not going to get 100% financing when your brand new so its just a wish and prayer so if this is real and you can actually get the funds and the deals have enough juice in it.. paying the higher rate is still fine to build your book of experience so you can then go to cheaper financing. What the other folks who are posting that say its a bad deal .. they are using their reference point IE they have experince and can get HML usually with some money down for all in about 10 to 12% apr when you count points and junk fee's.

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4 Reply

OP

Member since 2021 · 9 posts · 6 votes

4y

Of the 100K property scenario, I would owe 10K when the property is finished within the first 6 months. If I flip it in 6 days or 6months I owe 10 % flat rate. If the project is not complete in 6 months, then the lender requests an additional 5% or 5K flat rate. After 1 year I am unsure of the amount. There is no points either.

I do agree that there could be better deals but for my first rodeo for experience and to build capital I think this is a good shot. The only money I will be putting in up front will be for the rehab fees which I was initial wondering if people had some creative ideas that would work in this scenario.

Ramon Jenkins

Real Estate Agent · Milwaukee County, WI · Member since 2009 · 3k+ posts · 525 votes

4y

creative ideas on how to pay for renovations materials and labor

credit card with possible deferred interest ( home depot, menards , and etc )

business credit

personal loans

401k loan

Account Closed

Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes

4y

Originally posted by @Tyler Demeter:

Of the 100K property scenario, I would owe 10K when the property is finished within the first 6 months. If I flip it in 6 days or 6months I owe 10 % flat rate. If the project is not complete in 6 months, then the lender requests an additional 5% or 5K flat rate. After 1 year I am unsure of the amount. There is no points either.

I do agree that there could be better deals but for my first rodeo for experience and to build capital I think this is a good shot. The only money I will be putting in up front will be for the rehab fees which I was initial wondering if people had some creative ideas that would work in this scenario.

You also have 6% realtor fees when you sell and closing costs and capital gains. According to NAR the average flip takes 6 months and Nets the flipper $15,000. If you can beat those numbers on the first flip that's great. It means you do 2 in a year and make $30,000 divided by 12 months is $2,500 a month or $577 a week or $14.42 and hour.

Or, you can work for Domino's and make twice as much and get benefits.

9 Reply

Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

4y

Originally posted by @Account Closed:

Originally posted by @Tyler Demeter:

Of the 100K property scenario, I would owe 10K when the property is finished within the first 6 months. If I flip it in 6 days or 6months I owe 10 % flat rate. If the project is not complete in 6 months, then the lender requests an additional 5% or 5K flat rate. After 1 year I am unsure of the amount. There is no points either.

I do agree that there could be better deals but for my first rodeo for experience and to build capital I think this is a good shot. The only money I will be putting in up front will be for the rehab fees which I was initial wondering if people had some creative ideas that would work in this scenario.

You also have 6% realtor fees when you sell and closing costs and capital gains. According to NAR the average flip takes 6 months and Nets the flipper $15,000. If you can beat those numbers on the first flip that's great. It means you do 2 in a year and make $30,000 divided by 12 months is $2,500 a month or $577 a week or $14.42 and hour.

Or, you can work for Domino's and make twice as much and get benefits.

Mike your a buzz kill :)

Tyler just look at this investor as an equity partner not a lender since they are putting up 100% of the dough.. its not a bad deal at all

with the Caveat that you can actually pull it off and create a nice spread.. Many in the industry do 5050 with the capital partner

so if you make 50k on it an the capital pulls in 15k thats a great spread for you 35k with OPM many of the BP beginners would be salivating on that deal.

But as Mike points out make sure there is a very nice spread so your not taking on risk and the only one who makes money is the money partner.

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1 Reply

Account Closed

Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes

4y

Originally posted by @Jay Hinrichs:

Originally posted by @Account Closed:

Originally posted by @Tyler Demeter:

Of the 100K property scenario, I would owe 10K when the property is finished within the first 6 months. If I flip it in 6 days or 6months I owe 10 % flat rate. If the project is not complete in 6 months, then the lender requests an additional 5% or 5K flat rate. After 1 year I am unsure of the amount. There is no points either.

I do agree that there could be better deals but for my first rodeo for experience and to build capital I think this is a good shot. The only money I will be putting in up front will be for the rehab fees which I was initial wondering if people had some creative ideas that would work in this scenario.

You also have 6% realtor fees when you sell and closing costs and capital gains. According to NAR the average flip takes 6 months and Nets the flipper $15,000. If you can beat those numbers on the first flip that's great. It means you do 2 in a year and make $30,000 divided by 12 months is $2,500 a month or $577 a week or $14.42 and hour.

Or, you can work for Domino's and make twice as much and get benefits.

Mike your a buzz kill :)

Tyler just look at this investor as an equity partner not a lender since they are putting up 100% of the dough.. its not a bad deal at all

with the Caveat that you can actually pull it off and create a nice spread.. Many in the industry do 5050 with the capital partner

so if you make 50k on it an the capital pulls in 15k thats a great spread for you 35k with OPM many of the BP beginners would be salivating on that deal.

But as Mike points out make sure there is a very nice spread so your not taking on risk and the only one who makes money is the money partner.

LOL. ;-)

OP

Member since 2021 · 9 posts · 6 votes

4y

Jay thank you for your wisdom. The deals and market that I am working in I'm looking around 25 to 30k in profits after all expenses. Plenty of opportunity to do that in these neighborhoods. I will be sure to continue in my research and understanding if "the juice is worth the squeeze"

Mike, try to have a better day.

Karen MargraveBusiness Member

Moderator

Realtor, General Contractor, and Developer · Redding, CA · Member since 2009 · 7k+ posts · 4k+ votes

4y

As Jay Hinrichs mentioned, it would be a good idea to do more research and understand financing terms etc. Remember that whoever is loaning you the money for the purchase is going to be securing that with a deed of trust and be in first position. That means getting a loan for the repairs you'll need to find someone willing to go in 2nd position. That is extremely difficult, especially with an inexperienced borrower, unless the deal is just such a smoking deal that there's so much money in it that nobody could possibly screw it up.

As for HML, the only way they make sense is if there's solid values, and you can get in and out quick. In the current market, with materials costs rising, interest rates ready to go up next month, etc. it's risky to be doing rehabs unless you can hold them and rent them if everything goes south.

Todor Ialamov

Real Estate Agent · Burlington MA · Member since 2018 · 113 posts · 142 votes

4y

@Tyler Demeter

This does not look like a golden egg. Talk to a few different hard money lenders in your area to compare these terms. Bet you could find much better terms.

Good luck!

1 Reply

Jim Parker

Rental Property Investor · Melbourne, FL · Member since 2022 · 22 posts · 29 votes

4y

Hello Tyler,

As I look at your scenario I would be most interested in what your after renovation value is. After your schedule takes twice as long as you expect, your costs are at least double what you expect, and your sale price is less than what you expect, you don't want to be the only one that doesn't make any money. It happens all the time. ARV will tell you whether this is a reasonable venture or an unreasonable one.

Aleksandar Popivoda

Investor · NW Indiana · Member since 2015 · 98 posts · 99 votes

4y

@Account Closed - post of the Year! Brutally honest. :)

Curtis Mears

Property Manager · Raleigh, NC · Member since 2014 · 728 posts · 596 votes

4y

@Jay Hinrichs

But don't most equity partners take a percent of the gain? So if he nets $50000, then they take 10% of the gain. In this case, he is paying 10% on the purchase price. What if the house breaks even or loses money (of course that never happens for 1st time flipper)? He is still paying the 10%. Seems to me, he will end up on the hook for the entire fee no matter what happens?

Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

4y

Originally posted by @Curtis Mears:

@Jay Hinrichs

But don't most equity partners take a percent of the gain? So if he nets $50000, then they take 10% of the gain. In this case, he is paying 10% on the purchase price. What if the house breaks even or loses money (of course that never happens for 1st time flipper)? He is still paying the 10%. Seems to me, he will end up on the hook for the entire fee no matter what happens?

deals are put together as you know in any myriad of ways.. and yes if he is guaranteeing a set return he could end up in the hole..

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