How Can I Receive A Hard Money Loan With No Money Down?

Question

I, along with my dad and brother are new to renovating properties. We are in the planning stages to align everything to begin renovating our first single-family residence.

My dad, and brother are residents of Georgia and would be applying for the loan because their income should be sufficient enough, and is also more steady than mine. The project's location would be in Los Angeles because I currently reside here, and I'm a real estate agent who would be able to assist in purchasing and selling.

What are some ways where we can eliminate the down payment on a purchase transaction? Is it possible to find an investor to contribute the down payment amount in order to receive the loan?

'Scenario' - A property that we are interested in recently expired on The MLS, and was listed at $1,099,000. An offer can be presented for less than the list price (Estimated: $900,000) because home is currently in demo state. The offer would include a request for the seller to pay for the buyer's closing costs.

Also, we have been researching a few contractors to help in the remodeling process.

Please provide any other information that can be helpful in our journey to completion.

George Krajacic · Answer

Hi Japeth,By looking to eliminate down payment you are trying to eliminate what is most important to equity based hard money lender (HML). Equity is what gives security to HML that if everything goes wrong and they have to foreclose and wholesale the property that they will still get all their money back. HMLs rely on equity and not on your FICO score or your net worth. Many HML do not care where the equity comes from. It can come from a partner, 2nd position loan or additional property with necessary collateral. I am a hard money lender in your area so let me describe the process that average HML would go thru in deciding whether to make a loan on the property you described. First you would have to provide the following: a. a signed purchase contract to buy the property, b. Itemized cost of repairs, c. ARV value of the property, d. Bank statement showing that you have enough money to pay for all loan closing costs including 25% down payment and 2 to 3 loan points and enough of reserve to pay 6 month of payments. As you can see it is starting to be a substantial amount of money. With $900,000 purchase price you would need the following:$225,000 - down payment $13,500 - Points $37,125 - 6 month of payments @ 11% (paid monthly) $800 - loan docks $276,425 - Total Funds required (some or all of this funds can come from the partner or the 2nd loan)Assuming that renovation costs is $127,000 the refurbished property would have to sell for around $1,285,000 price for a flip to be safe and profitable. Since you are new at flipping I would suggest starting with a less expensive property maybe around $300,000 purchase price with $428,000 ARV. This way, if things go wrong the problems are much easier to handle. I would also suggest for you to attend Numerous “Real Estate Investment Club” meetings in your area. It is good place to meet other people with same interests. Also clubs provide very informative educational seminars. If you visit my web site you will find a list of different Investment clubs you could attend.Good luck,George

Shannon K. · Answer

If you find this scenario, let me know! Haha... I've got cash assets, an experienced partner, solid deals, and still can't find a HML in Buffalo, NY. Everyone's focused on NYC!

Hattie Dizmond · Answer

If the down payment is a determining factor, then consider some more creative financing arrangements. A good deal should attract investors willing to partner with you. There are private money lenders who will front the capital for a % of the profit. The deal will have to be rock solid, with multiple exit strategies. And, as inexperienced flippers don't expect a 50/50 split on the first deal. The PML is the one truly taking the risk. But, 30 or 40 percent of something is better than 100% of nothing. The split will improve as you build a track record. There are other creative approaches you could consider as well. But, a HML is going to require equity. If the deal is good enough, that equity may be baked in. Most likely it will be forced equity via a % down.

Donna Genovese · Answer

pm we lend in Buffalo

Donna Genovese · Answer

Hattie Dizmond · Answer

They aren't generally organizations. They are usually individuals you have connected with and have built relationships with. You can't exactly find then in the Yellow Pages.

Account Closed · Answer

@Hattie Dizmond I searched on google to see if there were any programs like that with hard money lenders, but couldn't find any. Would you be able to recommend any who will front the capital for a percentage of the profit? This would be wonderful for our first project, and once we get established, we can start to put up our own capital. Thanks so much for the information, and your help regarding the matter.

Account Closed · Answer

@George Krajacic Thanks so much for the information. You definitely explained it well, and I understand how it works now. I respect your advice, and will look for a property around $300k when the time comes. Starting out, it will be much easier to handle. Also, I just signed up for my first real estate investment information session on Meet Up via your website. Thanks again for taking the time to send your thoughts.

Manolo D. · Answer

There are only scenarios where this could work, if you get the property say around 65% LTV or something close. Given that the property is in LA, there is 99% chance that you will not find it. You probably will want to broaden your search, maybe a multi family with FHA loans if your brother and dad will sign it over, together with their job and credit score, they might qualify for it.

Andy Davey · Answer

A hard money loan should not have money down if you have a good property. Most are asset based loans anyway. I suggest talking to your Hardmoney lender about how they are and why they are asking for a down payment - having "skin in the game" is good but a hard money lender with 20% down would be hard to work with. PM me if you would like. - Andy