Hard Money Down Payments

[Matthew Powell]

Hello everyone! Newbie investor here. My plan is to Fix and Flip a SFH in the Savannah, GA area and take profits the profits as a down payment to BRRR another property for steady cash flow as a way to diversify. Then Fix and Flip into my next rental property and so forth. My situation is, I'm saving for a wedding so I don't have discretionary income to save for a down payment. What is the typical down payment process for a Hard Money Loan? I've read a ton of books on flipping and even have a local company that is showing me their process, but I always get stuck with the barrier to enter.. $$$! What are some of your creative financing strategies to come $0 out of pocket on your first Fix and Flip deal?

[Dylan H.]

@Matthew Powell I just closed on a HML. They are generally just going to fund 90% LTC, even for newbies they'll typically do that. Despite the 10% of the purchase you need to bring to the table, they need to see liquidity for both that 10% and about 6 months of debt service. We were charged 2 points and a 8.95% rate, pretty typical for hard money. It's still a somewhat annoying process, makes you feel like you don't have that much control over the deal. Will now be looking for private money at 2 points and 10%, simply because the ease is worth the extra interest and that's a solid return for a private money lender as well.

#'s example: 100K purchase, needs 20k in work, 9% interest. You need to have have 12k (10% down plus 2 points) + 4500 (6 months of debt service) + 2000 (closing costs) = $18,500 in liquidity that you can show the HML to qualify for this type of loan. They will generally lend the rehab costs, they did for us, but we also had over 5 properties we had taken title to between my partner and I, so you may be quoted differently.

You could raise the money you need for the down payment on the HML and reserves, give them a chunk of the deal or a simple promissory note would work. Definitely gets hairier when you go this route and I'm not looking forward to 2022 tax season.. But, that money needs to be in your personal or entities accounts for 3 months generally to be able to show on bank statements.

The hard part about Savannah is finding deals currently. Basically you will need to be marketing yourself, even the wholesalers are keeping everything in house to flip or wholetail. That's not meant to be discouraging just be ready to fight for deals and do your own marketing. Don't try and make offers on flips on the MLS, because there quite simply aren't any deals, and if they are 'deals' they are complete demos and rebuilds which I imagine you don't want to do for your first deal.

Best of luck!