Hard Money

[Peter Tryon]

Hey everyone, not sure if this is the best place for this question...
But I have a question about hard money lending. I've been researching some lenders in my area and most say they only give LTV of 75%. My question is 75% of what? The total purchase price? The total purchase price and reno costs? or 75% of the projected value after reno? If im looking at a property that is priced at $100,000 and needs $30,000 in renovations but has comparable sale prices of $200,000 what can i expect to receive for the loan? I just want to be sure before approaching anything.
Any help would be appreciated

[Bill Gulley]

There is a distinction that needs to be understood by new investors as to lenders and "programs".

There are private lenders, these guys are usually local, they do deals based on partnering or funding a deal, they have the most latitude and flexibility, if they have confidence in you, you might get what you need. They are, technically, they as a whole, are usually the least sophisticated of the lenders. Most, while not stupid, fly by the seat of their pants and gut instinct than real analysis or underwriting.

HMLs are really in the business, money is their product, they will have marketing schemes, they adapt to "programs" as a means to streamline their operation to meet their business requirements in an area. They are in competition with outer sources of funds. They fill niche needs that generally fall through the cracks at banks or conventional lenders. Saying they make 70% LTV might be based on their investor requirements as they go out and get investors, they need to assure them a certain level of prudence, it's not so much about the deal or the ARV or the purchase price as it is to the assurances and agreements they have made with investors.

If a HML has discretionary funds that they are willing to use without investor restrictions they may do deals that make sense. If they have confidence in the borrower, a track record with them, know the market and understand the risks they may do 90% LTV, nothing stopping them. They will be aware of more underwriting parameters but they aren't as tough as conventional folks.

Investors get caught up in "programs" or conditional lending from conventional financing, banks, institutional lenders and the secondary market that are under regulatory restrictions and prudent lending practices where enough loans have been made to provide a statistical basis for lending guidelines to be followed.

HMLs usually adopt many of the aspects of conventional lending, so they don't need experts in the field or reinvent the wheel and then make adjustments in their risk tolerance, basically, and justify higher returns. I've known HML lending officers who two years ago were car salesman, and some had ten years experience at a bank as a loan officer, so the expertise varies widely. Some can bend, some can't.

So, money is the product basis, the programs are from regulatory and external factors that have been developed or adopted as a product, a marketing aspect to sell the product and service.

From time to time one lender will be more aggressive than another, I won't go into the reasons why, but even secondary market lenders have leeway to make and sell a loan after it is seasoned under different conditions than if the loan was sold immediately. A private lender may just think he's sitting on too much cash and needs to get it invested, they may then accept additional risks depending on market conditions.

In all cases, every time, a lender wants to lend to investors who know what they are doing, if you don't know what you're doing I don't care what the LTV is between 50-80%, I probably won't do it, unless I know I can acquire the collateral, dump it to someone else and get all my money back at a profit, certainly not at a loss. It's subjective, but we will use the LTV to offer a product at a given set of circumstances.

I've obtained loans well above 100%, I've made loans to include other lending aspects that were more than just the RE values, usually with other agreements involved. But it's really a stretch of the imagination for new investors (less than 10 years in the business with a track record) to think such loans are an everyday reality for them. Experience is a key factor to a lender who will even consider flips, construction activities and speculative transactions.

As the old saying goes, if you can show you don't need a loan you can usually get one.

If your goal is to obtain funds, look to all the sources you can, they are leasing you they money, you need to come across professionally, confident, have your ducks in a row, facts not blue sky or BS. No borrower ever "snowed me" I heard many sad stories, hype, smart guys with slick presentations, they're a dime a dozen. Be honest, forthright, factual and confident but not cocky, you'll find it much easier to gain money partners with knowledge and honesty than anything else. So, forget the "program" approach as being set in stone for unregulated funding. Good luck! :)