IS YOUR HARD MONEY LENDER DOING YOU A FAVOR?

[Toyin Dawodu]

Is your hard money lender doing you a favor?

My answer is NO. If you are a rehabber, you are the one doing your hard money lender a big favor.

As a flipper, you spent your money marketing for deals. If you are good at finding fat and juicy deals, you can write your own ticket.

So when a hard money lender says to me, "can you go to our website and complete our loan application, I immediately roll my eyes at him.

If he now says, we have to check your credit, I immediately say in my mind "FU"

Sometimes, I let them go through their spill.

These are our criteria, "you have to have 30% of your own money in the deal.

First I say, okay, here's my scenario.

I am on contract to by this property. It is worth $340K as is.

How much would you loan me?

The next question they ask you is "how much are you paying for the property"?

In this case, my contract price was $220K

Then the "ignorant" and inexperienced hard money lender tells me, we can only loan you 70% of your purchase price.

I ask him why, and he says, "we want you to have skin in the game.

To which I say in my mind, "really, and followed by "FU" again.

I then ask him, what about the equity I am bringing to the deal?

He says "what equity?" I then remind him again, I am buying this property for $220K

The value as is right now is $340. I am buying it at 65% LTV. I will have $120K equity on the day I close.

Don't you think that is enough skin in the game? To which the dumb hard money lender replies, "we still want you to put your own money in the deal"

Obviously, he did not get my business.

I went with the smart hard money lender who loaned me $225K on the deal, enough to buy and pay all my closing costs.

The dumb hard money lender called me a few weeks later to ask me what happened to his term sheet? I said, "let me check my bathroom" Just joking.

The moral of this story is this. When you live in America, you have choices.

As rehabbers, we spend a lot of money and time chasing deals. By the time you find a good deal, you have already invested a ton of money and skin in the game.

So, for a hard money lender to tell me that he wants me to have a skin in the game or what is my Fico when I put a 65% LTV contract on the table shows that the hard money lender is either a newbie or does not have a good grasp of the business.

I am sure some people would probably disagree with my position. So let's debate.

Who is doing who a favor? Is it the flipper who spent his money finding deals only to be told he needs more money in the deal? Or the hard money lender who controls the money and thinks the flipper does not have enough skin in the game?

I say, if you are buying a property at 65% LTV of ARV, lenders should be giving you a medal and throwing money at you. Especially since you are paying their crazy high interest rate and ungodly points.

The smart ones do. These days, there's a lot of money around. So, as a flipper, just focus on finding good deals and the money will chase you.

By the way, I turned down three other hard money lenders for my deal.

I will be closing escrow on it in a few days.

Purchase price, $220K. Loan amount $225K

Rehab $30K. Sold price, $364K. Gross profit,

$109K.

How many of these do you need per year to make a good living?

Check out the before and after pictures of the property. Happy Thanksgiving. I welcome your thoughts.