Is is possible to get hard or private money for a good deal but have bad credit?

Question

Hello,

I am a solid contractor with good referrals wanting to get into flipping but don't have the credit score to make loans work. Is hard or private money out of the question too? Any creative suggestions on how to start?

Greg

Ned Carey · Answer

Yes absolutely.  however virtually any lender is going to expect you to put up some cash. Even if they didn't you would need a cash reserve for contingencies. You also need cash to get the construction started until the first construction draw comes.

Also just because some hard money lenders will lend, this does not mean it is a slam dunk. The specific deal will make a difference, exactly how bad your credit is can matter, and how much cash and experience will be a factor.

Private lenders are different than professional hard money lenders. They loan because they know, trust and or love you. Rich Uncle Fred may lend you 100% of the money you need just because you were always his favorite nephew.

Jared Rine · Answer

@Greg  Palmer

As long as everything else looks fine and there is a reasonable explanation, I would say it can be overlooked.  @Ben Stoodley added some good info.  Credit is usually not looked at by HMLs but with my guys lending at very high leverage 80% loan to purchase and above (up to 100% of TOTAL COST), they like to have some comfort.

I would be interested in seeing the project you're looking at doing.

Feel free to connect.

Thanks,

Ben Stoodley · Answer

Hi @Greg  Palmer - as most of the last comments elude to, all good HMLs are asset based, with no min credit score. All the security is in the real estate. By doing ground up construction, the only security is in the land + whatever you have built at that time. With that being said, most lenders won't lend as high of a % LTV on the purchase of the land. Typically, they'll lend up to around 50% purchase on the land while still allowing enough room to provide financing for all of the construction costs. It's all in the numbers, as long as those costs are under the lender's max loan - 65%-70% ARV typically - then the loan can be done.

Every lender I've ever worked with will require some "skin in the game" on the purchase side. However, if you have other land or investment properties that you could use as collateral, that would likely suffice your down payment commitment and you could get the deal done without any money from your pocket. Same with Seller financing, maybe the seller will carry back a note in the amount of down payment required by your lender.

Hope this helps! If you have any other questions, feel free to contact me at anytime.

Thanks!

Ben Stoodley

Jared Rine · Answer

@Greg  Palmer

To answer your immediate question, you type "@" then the name, no spaces and you can tag people in your response.

As far as the hard money lending is concerned, how bad is the credit score for your referrals trying to get into flipping and are there reasonable explanations for why the credit is bad?  Bad is also subjective, so would want to know what correlates as bad; are we talking sub 500, mid 500s, low 600s, etc.

@Curt Davis  hit the nail on the head though for being new and how experience plays a role.  Experience plays a key role in getting a hard/private money lender to lend to you or fund your deals, not necessarily credit qualifications.  Those can be looked over usually.  I would advise you to find someone to partner with who has experience, learn the ropes and then go out on your own, if that's possible.  If not, then your projects need to "hit out of the ballpark."

@Manolo D....50/50 is usually a solid offering for a JV if you are buying right.  I've seen others but it's usually because the deal is tight and the lender wants their return.

To all...I have a couple niche lenders in hand who will do up to 100% loan to cost financing (up to total loan of 75% ARV).  Total loan would mean purchase price, rehab, loan cost and holding costs all wrapped into 1, usually 50/50 chop of net profits.  This is for flippers with experience and the project has to check out.

Hope that helps.

Greg Palmer · Answer

Thanks for all your input, I think half of it is getting over the intimidation of calling up a hard money lender, it's not like they're monsters right! :)

On a side note, how do you all include someone in the reply loop - those little blue name tabs?

Greg

Jay Hinrichs · Answer

@Manolo D.

Start with a JV partner.. get track record and some cash then go to HML

Curt Davis · Answer

@Greg  Palmer

Most hard money lenders want their money back in a short amount of time so they will want to know what your exit strategy will be to pay them back?  If you are looking to fix and flip then they should look closer to the actual numbers of the deal and your ability to pay the monthly note.

You might consider partnering with someone just to get your feet wet and gain some lender trust.

Good luck

Brian Gibbons · Answer

Forget about HMLs.

Learn about JVs and Private money lenders.  They never pull your credit.

See

1. http://www.biggerpockets.com/blogs/3/blog_posts/41...

Private IRA money for Deals.

2. Learn about negotiating with Sellers - Mild Rehabs - JV with the Sellers - Use Private Money for Rehab - Put  lien on the house, dont buy it - Get paid when you sell it.

Greg Palmer · Answer

@Jared Rine

Thanks for your input, there have been a few comments on this thread regarding experience. I don't know if any have looked at my profile but I've managed construction of 45 homes, done about 5 commercial TI's, and a couple of residential remodels. My experience is great I just haven't done a flip yet but I don't see that as a problem given my construction experience and knowing what would need to be done to a house.

As far as the credit the main reason is late payments on cc debt. I moved away from where I built all those homes and started a company in a new state so my word of mouth and network is only a couple of years old but is starting to get a lot better.

I'm meeting with a realtor today regarding a flip possibility he has so I would be interested in your niche lenders if the above narrative passes your test.

Greg

Manolo D. · Answer

@Curt Davis Yes, exactly my issue, as I am only exposed to commercial and government ground-up construction and tenant improvement (aka remodel in the rei world), I am having trouble finding hml, or perhaps i am not asking the right question/giving the right answers.  The fact that i use the term tenant improvement instead of the word remodel, rings up a bell on my mind that i dont speak the same language with them.

@Jay Hinrichs I will do that. On JV, is 50/50 going to be worth for the principal partner or do i need to offer more?

Is is possible to get hard or private money for a good deal but have bad credit?

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