Hard Money Lending - Basics

[Carlos Flores]

Hello All,

I have been doing research in order to start flipping homes.

Can anyone offer some insight as to how private lending works.

Terms?

What are 4-12, 4-9, 3-6?

What lenders do you usually use?

How many lenders are you using?

Gap Lenders?

What are their terms?

Please it would be greatly appreciated.

[Arpan Patel]

Okay let me give you a top down view of Hard Money Lending. First is knowing the people and the motivation. They can come from many areas - some are or have been successful at flipping property and now have excess cash while others come across excess cash from other areas and know the security of real estate versus other vehicles. They all want to lend to people who have some money, some experience, and want to scale (the more the better for all three). They don't typically want newer people that they will need to guide along nor do they want someone with bad financials. Then the typical rates and terms vary but you can figure between 10-20% down on the project for a 6-12 month loan. The points, fees, and interest rates will vary widely but figure after everything is said and done to be about 10% for 6 months. They may have 1 point and 18% or 4 points and 12% but it usually all comes back to 10% for 6 months. I use 3 at a time but have another 4 i can turn to at any given moment and make it work. I am not in your market so I don't know the lenders in your area but they are relatively easy to find. You can find some at your local REIA and if they are not there then their clients area. I would not recommend hard money for your first few deals because you may get hosed by the costs of financing if you take too long or if you are over budget which are normal problems for younger in their career investors. I'd go the more conventional route or private money at first to get your feet wet. Happy Hunting and good luck!! PM me if you have other questions and I'll do my best to get you answer you can work with.