HARD MONEY LENDERS

[Daniel Elijah Richardson]

Do hard money lenders require you to pay a down payment when flipping houses I know they will require something with rentals but flipping is different. I have a guy who says he will lend me the money for properties plus 70% for all the repairs does this sound legit. It sounds a little to good to be true. 

[Andrew Michael]

OK Sure, for this example lets just use 12 months, 3 points @12%.  The lender says they will cover 100% of the construction costs and the rest will be towards the purchase price.  

So first we want to find 65% of the LTV and 80% of the LTC

- LTV (Loan to Value). ARV x .65

- LTC (Loan to Cost).  (Purchase Price + Rehab Costs) x .80 

LTV Loan = (200,000 x .65) = 130,000

LTC Loan = (75,000 + 55,000) x .80 = 104,000

So our loan amount in this case would be 104k because it is the lower of the two.  The safest for the lender.

Using the terms above, 49,000 will be released at closing and go towards the purchase price.  The remaining 55,000 will be held for the construction costs.  49,000 + 55,000 = Total loan of 104,000.

Next is what charged by the lender.

Points = Loan amount 104,000 x .03 = 3,120

Monthly Interest payments would be = Loan amount x 12% divided by 12 months

Monthly payments would = 1,040  (104,000 x .12) / 12

Next is what the borrower must bring

Down payment = 26,000 (the remaining amount for the purchase price.  49,000 from the lender + 26,000 from the borrower = 75,000 the entire purchase price.)

The points mentioned above - 3,120

Closing costs (lets estimate 3%) - 2,250

Insurance - 900

Lawyer fee's - 1000

So in this scenario the buyer would bring about 33,270 to the table.  

Remember to factor in carrying costs such as utilities, taxes, agent fees, etc.  Based on the numbers I would say this deal is OK as long as the rehab is finished within a reasonable amount of time.  There is money to be made here.  Overall you are putting up 33-40k and making roughly 25-35k.  

Does this make sense?

Of course these rates and terms are different on a per deal basis but this gives you an idea of how to breakdown the loan.