first time flip- what can I expect with hard money lending?

Question

Hey everybody, I'm fairly new to BP and am interested in eventually starting my first flip and sell in the Baltimore area. My cash reserves are somewhat low and so I would like to learn more about the up and downsides of using private lenders and hard money lenders. Aside from having to put 10-20% down to secure the loan, what can I expect to encounter when dealing with hard money lenders in terms of interest rates, points, getting the funds from them to pay contractors/buy supplies, etc. Any advice as to how the hard money side of the business works would be greatly appreciated.

Also if anyone has worked with quality lenders in the Baltimore area I would certainly appreciate referrals. Thanks!

Matt

James A. · Answer

@Matt Radhe Welcome to BP! Just another suggestion, if you don't have enough funds focus on finding a great deal and partnering with someone who has the means. Deals are getting tight in this market and having a good deal could set you up to be in a favorable position to partner or you could wholesale for some quick cash and that could get you to doing your own deal. Good Luck!

Brian Garrett · Answer

Here in my area most HML's are 0-4 points and 10-12% interest.

Matt Radhe · Answer

Thanks @James A. for the response. I think you made a good point- just because a deal is out in the open doesn't necessarily mean it's a landmine, it could be that nobody has pulled the trigger yet or has had the time to take on the challenge. We're going to take the next step and start talking to realtors and checking out open houses and rehabbed houses in the neighborhoods we are targeting to try and see what works and what doesn't. I appreciate all the input so far!

James A. · Answer

@Matt Radhe I have only been investing for a year but have lived in Baltimore for about 9 years, so I am very familiar with the most of the different areas. I am focusing on just flipping, fix n flipping as I have learned that you can get distracted by all the different strategies and end up spinning your wheels. I think you are doing the right thing by studying the neighborhoods and identifying houses that might stand out. I know people are saying there are no good deals on mls but i don't necessary believe that. I have been finding that deals are still on mls you just have to pull the trigger much faster and that can be hard when you are newer investor. Another thing i have learned I would always question something that had not been picked up by an investor and there must have been something really wrong but in reality most investors only have limited amount of money and time. You have to analysis the deal to your criteria and make sure the numbers work for you investment goals. I have talked to several different investors about how they decide what return they look for and some do it by a dollar amount and some are looking for a certain percentage. The point is that you have to spend some time to figure out what you want from you investing. A great way to learn different areas is attending open houses. I focus on ones that have been fixed and flipped, seeing what other investors haven done on there reno and get a chance to talk with realtors who work with investors and pick their brains about the market and different neighborhoods. Get out there start being active! Hope to see you around.

Jeffrey H. · Answer

Expect to have collateral in the form of cash, income...and of course the house itself. youre not borrowing everything you need either.

Matt Radhe · Answer

Thanks @James A. for the advice, I'm definitely leaning towards the partnership route both for the financial reasons as well as the support in splitting the risk/workload. How long have you been investing in the Baltimore market? Do you do rentals or flips (or a mix of both)? And where do you tend to look for deals? I've been spending some time looking at listings on Zillow and targeting rehab houses that have been on the market for awhile (>30-60 days), in neighborhoods that have a close proximity to sought after neighborhoods that will hopefully be rising in home value and with median home values that are at least 1.5-2x the asking price for the house in question. I've found at least 5-6 around Baltimore that really look promising and I guess I'm just wondering if I'm missing something with these properties that make them bad deals...how often do you tend to find a deal in the area that you think is a worthwhile investment?Thanks @Joaquin Rosario, that's an approach that I hadn't thought of yet (JV partnership). Any advice on where I might be able to find these in my area? I do plan to attend some meetups in the near future and start networking that way

Joaquin Rosario · Answer

Hi @Matt Radhe,Welcome to BP Matt. Have you considered a JV partnership? If you find the right company those are usually good to get started if the deal makes sense. The way they work usually is 15% down payment and you manage the crew meaning your the boots on the ground. At the end of it theres a 50/50 split on the profits. If the deal is good enough this would be a good strategy. I would also recommend going to your local REIA meeting and seeing if you find a seasoned Fix and Flipper that you can add value in any way and start learning the business that way as well. Have a blessed day.

Matt Radhe · Answer

Thanks everybody! That was helpful, I'm going to start looking into the lenders in my area and see what kind of rates I can find

Michael Huck · Answer

There are Hard Money lenders out there with rates in the 7s and no points but you need a bit more down (25% plus) and you have to use a broker which adds some fee but can be negotiated (I can say this with certainty because I work at one :) )They can also get up as high as what is being quoted here, it really depends on the lender themselves and how much digging you are willing to do. I have a broker client that has told me he has secured Hard Money deals from a Chinese investor in the 6% range because savings are so low in China, even negative at times. Hard money is not bad, it is just equity based so the more down the better.

Grant Rothenburger · Answer

@Matt Radhe what @Ryan E. said is pretty accurate in my experience. There are some national fix and flip / hard money lenders you could call up and see if they'll pre-approve you, and what their terms are. Patch of land, fund that flip, finance of america commercial, lima one capital, just to name a few. Good luck!