San Diego , CA · Member since 2017 · 42 posts · 18 votes
Please any and all advice is greatly appreciated. My question is when dealing with a HML that's offering 85% LTV and I have a property that appraised for 770k very recently under contract around 630k. (85% of its current appraisal value is $654,500) how much of my own money do I need to come up with here? Since the hard asset is worth $115,500 more than I need to borrow would the lender not require me to put up any of my own money or how does that work? I know I'd be responsible for closing costs but with them, how much can I expect to pay out of my own pocket for this deal? I'm unfamiliar in this area and would love someone to shed some light on this subject for me.
Lender · San Antonio, TX · Member since 2016 · 1k+ posts · 1k+ votes
9y
@Account Closed No, because if the loan is up to a) 90% of cost or b) 80% of ARV, it would be up to $567,000 (a) or $616,000 (b). So in essence, the loan can't be higher than either $567k or $616k. Both of those stipulations are ceilings, so both have to be accounted for when determining loan size. So now if you get the contract down to $567k, your max loan amount will also go down to $510,300. There is no escaping at least a 10% down payment based on your lenders requirements. Hope that helps and good luck!
Lender · San Antonio, TX · Member since 2016 · 1k+ posts · 1k+ votes
9y
@Account Closed This can probably only be answered completely accurately by your lender, but if he really is giving you 85% LTV, you would have no out of pocket. More likely, he is giving you 85% LTC, meaning you need to come with a 15% down payment. In my experience, 85% would be a very favorable ratio for the borrower.
Also, many lenders have caveats based on the ARV, so they might say 85% LTC not to exceed 70% ARV, which would in essence be 70% LTV.
San Diego , CA · Member since 2017 · 42 posts · 18 votes
9y
@Jason Hirko what I read exactly was from a local lender that stated
"Loan size from $100,000 to $5,000,000 • Rates from 8.5% to 10.5% • Loan-to-Cost up to 90% • LTV up to 80%"
Even at 80% that would be 616k. If the seller would consider an offer of 616k or less I would have no out of pocket? I do appreciate the help too! BP always with the save!
Lender · San Antonio, TX · Member since 2016 · 1k+ posts · 1k+ votes
9y
@Account Closed No, because if the loan is up to a) 90% of cost or b) 80% of ARV, it would be up to $567,000 (a) or $616,000 (b). So in essence, the loan can't be higher than either $567k or $616k. Both of those stipulations are ceilings, so both have to be accounted for when determining loan size. So now if you get the contract down to $567k, your max loan amount will also go down to $510,300. There is no escaping at least a 10% down payment based on your lenders requirements. Hope that helps and good luck!
San Diego , CA · Member since 2017 · 42 posts · 18 votes
9y
@Jason Hirko Thank you sir, that's exactly what I wanted to know. I couldn't wrap my brain around a hml lending anyone 75-85% ltv with 0% down and just starting them on interest only payments. Anyways, maybe you can answer another question for me... I don't have a W2 income, but do have some capital saved to invest with. What would be my best method of financing my first investment property in your opinion? Seems the fha route is out of the question at the moment. Hard money requires 10% down. Conventional still requires W2 and a good down payment if I'm not mistaken. Private money/joint venture is always an option. Split the deal with someone bankable. I'd just like a second/third opinion. Thank you guys!!!
Lender · Hackensack, NJ · Member since 2016 · 1k+ posts · 372 votes
9y
honestly it sounds like your dealing with a lender who isn't loaning on arv. in that case the ltv would be 85% of the purchase price. most fix and flip lenders won't go in on a loan for more than 65% to 70% of the arv
Lender · Paramus, NJ · Member since 2016 · 118 posts · 33 votes
9y
@Account Closed
It depends on your risk appetite. Quite a few people prefer to partner up with someone experienced on their first deal. It is always helpful to have a second pair of eyes in this case. There will be plenty of deals to come/to do in the future but bad experience on your first deal may put you on a different path.
But if you are comfortable with a risk and it is a great deal - you don't want to surrender a significant part of your upside.
San Diego , CA · Member since 2017 · 42 posts · 18 votes
9y
@Boris Grinberg A little background on myself. I started in flipping cars about 5 years ago similar to a house flipper, I've always learned to manage risk and I've always done pretty well. I would make low offers on vehicles that need a little to no work, make sure title was clean, smog tags etc, meet up/purchase all cash. Then I'd wash them, take better pics and sell them in the exact same place I purchased them from for always a good profit in 2-3 days for sometimes double what I paid. Now I'm ready to graduate up to the big leagues. Real estate. For the last year and a half I've learned tons of information regarding investing in real estate, podcasts, blogs, forums, rei books, networking with other investors, wholesalers, gc's, reia meet ups, seminars you name it. I do have some capital to invest and since I'm not working a w2 job and I don't own a property I have the time to rehab, manage crews, do showings or viewings, go to appraisals or inspections title etc or even occupy an fha obtained multi and house hack while whomever I partner with would be investing from the outside, doing less boots on the ground work. I'm willing to take on any/the most risk for reward with an experienced investor. Not just to make money or be one step closer to financial freedom but the knowledge gained from doing deals, especially the first few are priceless.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
9y
Most hard money lenders will also require that you have the interest payments in reserves as well so even if they did fund 100% of acquisition, you still need the holding costs and debt service capital.
Lender · Paramus, NJ · Member since 2016 · 118 posts · 33 votes
9y
@Account Closed Sounds like you don't need a partner. Best way to learn and/or get experience is to do it yourself. No other way.. Good luck and let me know if I can help.
San Diego , CA · Member since 2017 · 42 posts · 18 votes
9y
@Tarik Turner so you're saying a fix and flip lender who's lending based on arv will lend 100% of the deal if the cost to buy and fix is 65-75% of the arv or less or again is there no escaping at least 10% down so they know you have some skin in the game.
San Diego , CA · Member since 2017 · 42 posts · 18 votes
9y
@Will Barnard So if I didn't have to put any money down, I just prove I have to prove to the lender I have $49,280 (8% of 616k) in the bank for reserves to pay the interest?
San Diego , CA · Member since 2017 · 42 posts · 18 votes
9y
@Boris Grinberg Agreed, but by myself I can probably start small, scale slower and only do a few deals BUT, partnering with an experienced investor or two, together we can do tons of deals, scale up a lot quicker and ultimately all receive larger returns with the quicker and higher quantity of deals getting done.
San Diego , CA · Member since 2017 · 42 posts · 18 votes
9y
@Tarik Turner when you say the points on the loan are deducted at closing what do you mean? There's let's say 1 point and it's a $550-600k loan, id have to pay that point up front? ($5500 to $6000)
San Diego , CA · Member since 2017 · 42 posts · 18 votes
9y
Thank you everyone for the advice. I have a few more questions but those are for another day and another thread. Keep killing it out there everyone! I really appreciate everyone here at bp!
Investor · West Los Angeles, CA · Member since 2014 · 230 posts · 239 votes
9y
@Account Closed
In addition you need to show proof of funds for the startup construction costs. Some hml only fund purchase price. Some fund both construction and purchase price. Either way they will ask for your most recent 3 months bank statements (or wherever you keep your funds brokerage account etc). They are looking to see liquidity. If you are partnering on the deal the other person can show pof. When you start construction you need to use your own funds to start rehab. You then request the money from the bank in the form of a draw. This can take a few weeks to a few months depending on the scope.
My advice is you contact a few hml get an application and see the criteria.
San Diego , CA · Member since 2017 · 42 posts · 18 votes
9y
@Account Closed Can you explain more about requesting construction money in the form of a draw? Is there a minimum requirement for the “start up with my own money” clause.
Investor · West Los Angeles, CA · Member since 2014 · 230 posts · 239 votes
9y
@Account Closed
As an example I'm working on a new build. First thing that needs to happen is the old structure needs to be bulldozed. So say it costs $10k. I bulldoze the house, I pay the contractors. The bank comes out to inspect the work. They see it's been razed, I provide receipts for the work, the bank cuts me a check. It's called a draw. My monthly interest payments are increased by the draw (money borrowed) amount.
San Diego , CA · Member since 2017 · 42 posts · 18 votes
9y
@Account Closed that makes a lot more sense to me. Is that only in a complete rebuild type of rehab? Would that clause still apply to a property that needs little to no rehab that was purchased right just financed differently
Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
9y
All lenders will be different here. Private money is not standardized. Evaluations are different, down payment money is different, all of their risk tolerances are different.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
9y
Originally posted by @Account Closed:
@Will Barnard So if I didn't have to put any money down, I just prove I have to prove to the lender I have $49,280 (8% of 616k) in the bank for reserves to pay the interest?
Sort of. You need to prove/show you have the interest reserves plus holding costs for 6 months or 12 months (depends on the lender and the specific deal). Then of course that is IF the HML funds 100% of your acquisition price and acquisition closing costs.