Hard money horror stories. Let’s hear them

[John Hickey]

I’ve posted some of this stuff before but I figured it might help if I shared a few of my blunders here that could have been avoided. Hopefully some sharp investors read this and offer me and others advice on how to navigate better.

I’ll start out.....

My first hard money loan I took out September of 2017.

12% with 3% points to the broker at the table. 1 year with extensions available for 3 months with 1% fee.

The loan was for 932k 791 purchase and 132k 50k construction 72k interest and tax reserve.

The purchase price was 1.375m

The property was 8 buildings of 40 or so units scattered in a D area with F tenants.

My biggest mistake? I made many. But I think it was not having enough reserves.

I put down all my money on this deal. About 600k.

I had bought three houses within a few months and I would buy two more a year later.

Second mistake was buying too much property.

But that was really the crux of my plan so I can’t fault myself there, buying all those houses gave me control. The overall plan was to force appreciation in the whole area.

On to the refi plan which was to one by one fix and refi the properties in a portfolio loan.

With only 50k in Reno funds I already knew i wasn’t going to be able to do much. However I had an interest and tax reserve so I was planning to use the rents from the occupied properties to find Renovations.

I did manage to get things ship shape enough to get it ready for a bank. I had spent months talking with banks on my plan and had the contacts lined up before closing. I was taking in 18-20k a month in rents in those days.

Unfortunately for reasons I will most likely never know a few weeks before the refi was to close.......5.75% on 1m Loan 100k cash for more Reno....the bank walked away with no explanation.

They had had my financials for 6 months and not much had changed. At least for the worse. If anything things were better. Revenues up, occupancy down and much better tenants. Even the appraisals were up.

But no matter. I moved on.

[John Hickey]

In January...pipes froze in a 6” fire sprinkler system in a mixed use property.....10k the owner agrees to do the work and give me 90 days.

I started working on the other Refis. Looking back my whole plan was based on 5% mortgage rates. I couldn’t imagine paying 8.75 for 30 years. I have done commercial loans for 10 years at 3.15% but that wasn’t happening now.

And every week soothing else went wrong. Fines, theft, fires, drug overdoses, collapse ceilings it never stopped.

I kept making the payments. One way or the other. 4 maxed credit cards, 3 personal loans 9 mortgages, 11 utility bills.

Then my partner, a minor partner in the business left. Took our last payment from the hard money and walked off for close to a month. When he decided to return I had had enough. In the 8 months we were partners he had taken 17 weeks of vacation. Not even 50% of the time was he there. So I told him he was out. I would sell something and give back his money.

He placed 6 liens on properties.

Suddenly I had a lot of bills. A big stack I couldn’t pay. I could pay the taxes water sewer, mortgages, credit cards but almost nothing else. And I still had 10 vacant units left now.

I had a building with the electric meter in the basement. The bill was getting way overdue. To kill power for non payment they would need to access basemt. I locked that basement door and let the tenants know don’t let them in or we have no power.

Meanwhile I tried to negotiate with the utility. I picked them bc the credit card and mortgages reported. I was still trying refinancing so no way did I want a late payment. They finally agreed to give me 60 days over the summer with small payments. Even that was difficult to manage.

I owned a local carting company 6k and the folks that knew them....my management co said that was a bad idea.

I was upfront with everyone. I let them know I was in over my head but I would eventually get things right. All debts paid.

I started calling once a month to my list of accidental creditors. I would let them know how things were and when I thought I would pay. But it kept getting pushed back.

I had refinanced one more Loan. 150k off the original. I also sold a property. Paid 75 put in 15 sold for 134. Gone in a flash again.

I finished 4 more units. 6 to go. I collected 25k that month.

I was working on a refi. The property had a lien. Two actually. But it was worth 800k and loan was 320. Liens 100 so about 55%. The last big loan at 12. I had a few more loans say 500k or so but they were mostly 10%.

The mortgage co said they would escrow for liens. They told me no problem. We worked it out.

The day before the closing the title guy called me asking if I had the lien release. No. It’s from the loan proceeds. He said we can’t do that.

That was in August. In September it would be two years. Two years at 12%

the hard money guys had said they might begin to foreclose. They were nice about it but they wanted their 320k. They told me to figure it out.

I put just about every property I owned on the market.