First Flip - HML worth it?

[Kyle Coleman]

Hello,

My business partner and myself are aiming our sights at our first fix and flip property; we have money set aside for the project - but due to the amount we are willing to invest it limits some of our capabilities (can't buy in cash). Out of curiosity, I spoke to a hard money lender yesterday to see what they could provide us. I thought that if we used a HML, it would allow us a wider range of projects to pick from.

Their requirements are experience based; of which we don't have any in the flip market (we are buy and hold). 

-Must purchase at 60% ARV or lower (is this possible in todays market?)
-3.5% origination fee
-11-12% interest
-12 month term (shouldnt be an issue)
-They cover 75% of purchase and 100% of repairs

These numbers change pretty drastically once we have 1 deal under our belt, and then even more after 3+ deals. The problem is, that those numbers seem expensive, and buying at 60% ARV or lower, seems like it might be like trying to find a diamond in the rough.

So the big question, is it worth it? Would those numbers make sense for a first timer - just looking for opinions. 

Thanks!

Kyle

[Bob Woelfel]

@Ali Akhter yes that can be true. Think of it this way. A hard money lenders sole purpose is to work with investors and help them do deals. Most, if not all legit HML's are investors themselves. We are a second set of eyes. We look at the project, look at the budget, look at the numbers and get appraisals. If something is not right or the rehab budget is too low or too high we can make suggestions or ask questions. We require signed lien releases from contractors as well so we can help protect ourselves and our investor clients. We won't be there swinging the hammer obviously, but I do feel like we provide a significant amount of value to investors over and above just the financing part.

A private money lender...say a friend or family member is many times relying on you to be the expert.  After all, you probably went to them and said you were flipping houses or involved in real estate...blah blah blah.  So they told you they have some money they might be able to invest.  They are typically going to want to be hands off, otherwise they would do it themselves or at the very least set up a partnership with you and hopefully get more than the interest rate for their return.

Hope that helps.