hard money loans question

[D Higgs]

Hi. So as title indicates.. silly question re: hard money loans. Looking to purchase a fix/flip property using hard money lending. From research i've done so far looks like in most cases 100% of the deal wont be funded by an HML.. especially to new investors. My question is, Would it be correct to say the funds that me as the investor would be responsible for is (1) down payment (2) closing costs AND (3) the monthly payments to repay the loan?

So, a quick easy example would be: 

$100k final cost of home

$50k repair 

Hard Money terms: 2 points, 100% of repair costs + 80% of property, 10% interest, etc

As the investor, i would be responsible for the $20k down payment + 2 points + the monthly cost of loan

I know there are many other fees/costs that i would be responsible for. My question is just regarding the HML and monthly payments

Correct?

[Bradley Laddusaw]

In dealing with any lender, especially hard money lenders, try to get the structure really broken down in writing from them early in the process. Unfortunately, some companies present themselves as lenders but then they are just acting as a broker, or middle man, and do not make the final credit decision. The term LTV gets thrown around loosely in this industry to say the least so make sure they quote define what your gross loan amount will actually be because there will be an ARV cap as @Nathan Cross alluded to.

The loan structure you quoted is quite common but in most instances, you will need to have the liquidity to up front the rehab costs and then you will get reimbursed based on a percentage of completion.  You will also want to have reserves just in case the lender's inspector does not agree with your percentage of completion.  ie: You think you are 50% complete but the inspector says you are only 30% complete.

For these reasons alone, sometimes it is just best to elect to go for a straight purchase loan, 75%-80% LTP with no rehab holdback. At times your cash to close will be comparable dependent on your purchase price and scope of work and the lower LTV off the purchase price can give you more exit opportunities as a borrower in case your rehab does not go as planned.