Hard money loan?

Question

Hello, 
I would like to know if it is possible to get a hard money loan in our situation, here is the deal…

My husband and I have a house in North Dakota. The house is a large 3 bedroom 2 baths, with an extra family room, bedroom (non-egress), and bathroom along with a large laundry room downstairs. We have had the place for 5 years and owe about $71,000.00 on a C4D. We had a realtor look at the place as we want to sell it, she said the value would be $125,000.00 - $135,000.00 as is. She said if we could do a little updating like new flooring, paint, etc we could raise the value to around $185,000.00. In order to do this we would need a loan for $15,000.00 to $20,000.00.

We don’t need the loan to be for very long. The housing in this area is selling quickly as we are close to Minot and the Western part of the State.  I would really appreciate suggestions from those who are far more knowledgeable than I. Thank you in advance.

Account Closed · Answer

I am not a big fan of hard money loans due to the amount of risk involved, is this your primary residence or investment property? Depending on your goals will decide your strategy.

Marv Rousselow

Colin L. · Answer

Renee Shelkey for peer to peer lending check out lendinclub.com or prosper.com

Renee Shelkey · Answer

Thank you all for the information you have given me. It is nice to know there are still people out there who are willing to take the time to explain something to someone who doesn't have an understanding of what they are trying to do. I really appreciate your help in this matter and the information you have given me will help me decide how to move forward. You guys are really good people. :)

Mr Holdman = I want to thank you personally as you really laid everything out in a way thats understandable to someone who is not financially apt. You also mentioned peer to peer,,what is that, if you would not mind my asking ?

Ann Bellamy · Answer

Jon Holdman gave you a really good explanation.  You have a very low likelihood of getting a hard money loan.  For all the reasons Jon listed.  Go the friends and family route if you can.  Don't do the equity split.  If you can't borrow the money from friends, family, credit cards, etc, then sell as is.  Just my 2 cents.

Jon Holdman · Answer

You have three strikes against you from a HML's perspective:

1) Its your residence.  That comes with both emotional and legal ramifications.

2) You already have a loan in place.  So, the HML would be in second position.  Almost nobody will do that.

3) Its a tiny loan.  The work required to do the loan is the same whether its $20,000 or $200,000.

What about other sources?  Credit cards.  Sell a car or something else.  Peer-to-peer lending.  A personal line of credit from a bank.  Borrow from a relative.

I'd call what Justin S. is suggesting an "equity split".  That's where an investor comes in and funds the rehab.  Then you sell the place.  The investor gets paid back for their investment, the loan gets paid off and then you and the investor split what's left, usually 50/50.  So, lets consider that.  You say it will sell for $185,000.  Assuming housing is selling well in your area, you would have just commissions (6%) and closing costs (about 2%).  So, there is $170,200 from the sale.  $71K goes to your CFD and $20K goes back to the investor, leaving $79,200.  You split that 50/50 with the investor, giving you $39,600 each.

If you sell as is for $125,000 you end up with $115,000.  After paying off the CFD you have $44,000, more than with the equity split.

If you could get a $22K hard money loan, you would pay (roughly, this varies A LOT), 4 points, $1000 in various fees, and 15% interest.  Say that's for six months.  That gives you the $20K you need after points and fees.  After six months you would owe $1,500 in interest, which you probably need to pay monthly ($250 a month).  If you sell for $185K as above you are out a total of $23,500 for this loan.  After paying it off and the CFD, you're left with $75,700.

That seems like a much better deal.  But those three strikes make this very tough to make happen.  So, consider my suggestions.  You don't have some source, even at 20% interest, where you can come up with $20,000?  If not, I would just sell as-is.

Justin S. · Answer

I'm not sure how it would work since its on a contract for deed.  There are several hard money lender on this site though, I'm sure one will chime in and give you good advice.

Another option would be to partner with an investor, have them pay for the remodel and then do a profit share.

Renee Shelkey · Answer

This is our primary residence.