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.