Newbie question re: hard money

[Carrie Doan]

Hi there - totally new to real estate investing and I envision I will need to approach a HML at some point to get our first deal going. This may be a common sense question, but I'm wondering - at what point do you approach a HML? Do you wait to find a deal and then request financing, or get a sort of "pre-approval" ahead of time and then do a search for deals?

Appreciate any insight!

[Tom S.]

@Carrie Doan No problem to help out and what you stated above is correct.

For the rehab question and the amount of money, it varies a lot by lender. As an example with my last rehab, it was an property sitting abandoned for a year. As such, no conventional lender would lend on it, it needed some plumbing, electrical, a new heating system. I went to my local bank and we worked out a deal to purchase it for $50k, they would lend $35k in rehab funds, and the ARV was $110k (done with an appraisal).

I was required to put down 20% of the purchase price, so only $10k plus closing costs, so maybe $12k out of pocket. In the end the loan was $75k ($40k pur + $35k rehab), amortized over 20 years, 5.5%, or about $550/mo. The place rents for $1400, and I came into the property with $35k in equity ($110k ARV less the $75k loan). A definite homerun!

The deals are out there...good luck,

- Tom