It depends on the lender. All of the lenders I have come across only loan a percentage of the purchase price (no repairs). It seems to be market specific though as I've heard the Denver market has the type of lender you need. You seem to have a good deal here though, so I hope it works out for you. I would double check the comps though.

What's the buyer's exit strategy for the hard money loan? What's the buyer's exit strategy for the property? There will be points on the loan, typically 3-5. Rates are 12-15%, monthly interest only payment. Terms typically not more than a year. May have a tough time finding someone to do the loan if they're planning on living there.

Good people...good advice! I will go to the buyer with additional questions i.e. exit strategy after home has been repaired, sale has not been executed and HML becomes due? What funds is he going to contribute to repairs while waiting for HML disbursements? What funds does he have for holding costs? Again, thanks for your education.

An owner occupied situation is usually not appropriate for hard money. Owner occupied properties have emotional baggage. Hard money is a business deal. Once someone moves in it becomes "our home" and the hard money lender beings "that loan shark who's trying to take our home". A HML is a business deal. No HML want's to get hit for a short sale or loan modification. If you don't pay, you walk away quickly and quietly. End of story. If those numbers are correct, you should be able to get a loan. Based on the later reply this sounds like a fix and flip. Pretty common for HMLs require some of the borrower's own money into the deal. Even if you find a HML who would do 70% of ARV, there's only about $10K left after closing costs, repair holdback and points. So, the borrower is going to need some cash for the other expenses (appraisals, inspections, insurance, utilities) and for the holding costs (utilities, interest payments, fronting money to contractors before getting reimbursed.) So, yes, this deal certainly looks do-able with a HML. If you question is really "can the borrower do this with zero of their own cash", then no, they cannot.

Stan, If I were the hard money lender I would charge 3%-5% and 12% interest. If the buyer plans on selling the home thats fine BUT... what if the home does not sell and the terms for the loan are due? I would request an approval letter from a bank stating that the person I am lending to can get refinanced if need be.

Jon-The buyer is planning on selling the property and not living in the home.

Jon- The buyer plans on holding onto the property. So after the repairs, he would refinance into a permanent loan, possibly FHA. The buyer is willing to pay 3 point and up to 14% on the rate. Wouldn't an owner occupied property have a better chance of getting the deal through over non-owner occupied? Wheelhouse- The repaired value is actually conservative, which would result in a lower LTV. Thanks, for the support, if I can get this done, it could be the beginning of many more.

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Updated over 14 years ago, 08/17/2010

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Stan JacksonPoster

Real Estate Broker
Fort Pierce, FL

Starting Out

Can this work?

Stan JacksonPoster

Real Estate Broker
Fort Pierce, FL

Posted August 16, 2010 05:32

Buyer is interested in purchasing a home for $80k with approx. $50k in repairs. The after repair value is estimated at $214k based on comparables pulled by realtor.

Can the buyer take the executed contract to a hard money lender for the purchase and repairs, considering the total acquistion cost ($130k) is roughly 60% LTV?

What are the possible problems?

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