Any advice on Hard Money?

Question

Hi Everyone,

I’m looking to do my first flip with a hard money lender. I have the capital and sound real estate knowledge. Being a landlord for 3 years and doing all the work myself, reading book after book and listening to podcasts I have learned a lot. I was wondering for anyone who has used hard money before if there were any surprises in the lending process? Not the actual renovation or flip, strictly in the lending process such as surprise fees or terms that you did not know about. I appreciate any and all feedback and am excited to take the next step.

I do have good exit strategies and am willing to take the risk as it has been something I have wanted to do for some time but was unable to.

-Chris

Cody Campbell · Answer

Quick breakdown.

Hard money loan of 100k

-usually 3-5 points up front (3-5% cash you give the lender for the loan)

-usually 6-12 month term @12% apt

-you pay interest only each month (100k @ 12% is 12k) (12k/12months...you pay the lender 1000/month until you return his initial loan of 100k

So your 100k loan over 6 months will cost you 3-5k upfront and 6k in interest payments.

If you can flip the house in 3 months you only owe 3k in interest for the loan

Account Closed · Answer

@Chris Virgil-Stone - take a look at a crowdfunding lender (they are based in ATL).  I'm not affiliated with them in any way, but I've researched them and it's a winner for RE investors.  Let's connect, let me know how it turns out.  Good luck!

Manny Cirino · Answer

@Chris Virgil-Stone Beware of appraisal cost. Some lenders will require 1-2 appraisals of the property and will require you pay for them. The appraisals will usually help them determine if it is worth there time to lend on the deal.

Scott Schultz · Answer

Is there a reason you cant get a loan for a flip with the commercial lender at a bank?  if you have 3 rentals I would imagine you have some equity,  my guy will do up to 80% of purchase, at 4.5% 6 month interest only. i can pull the 20% down from equity or cash, and float fix up on a line of credit, self fund, or the bank will run it like a construction loan, I just cant see paying 3-5% up front and 12% interest the cost of the loan, and holding costs will kill your profit.

Chris Virgil-Stone · Answer

Thanks for the tips @Boris Grin, much appreciated! @Kevin Fox I am looking at it that way. It is a learning experience and believe I will be successful. If I am not able to sell within reasonable time I will make sure I am able to refinance under a conventional mortgage and move my family in as we are currently renting.

Kevin Fox · Answer

Hey @Chris Virgil-Stone

Even though this will be your first flip, try your best to frame your experience in a way that is condusive to showing that you possess the necessary skill set to take on whatever project it is that you'll be taking on.

You may not have a ton of flips under your belt, but it sounds like you have some relevant experience that you should be sure to highlight.

Boris Grinberg · Answer

@Chris Virgil-Stone: We don't lend in Georgia so just an advice: - Avoid guys that ask for upfront payment for application/processing (appraisal is OK as it usually goes to third party). I hear about some lenders that make a good amount of money from just charging people high fee but only occasionally delivering a loan.

- Get the list of all expenses in writing upfront. That should include all legal fees, charges and reserves for property taxes. Our offer letter includes all of these fees upfront so there is no confusion for our borrowers.

Good luck.

Boris

Cody Campbell · Answer

also talk with doctors, I work with anesthesiologist and they are excited to earn 12% backed by property. Doctors can be a big assets to hard money lending. If you can do 1-2 deals with one, they will talk, and you'll have other options through their friends.

Jason Hirko · Answer

@Chris Virgil-Stone

Watch out for lenders that will hike up your rate or hit you with a bunch of fees at closing. Do your homework first. Nothing worse than trying to decide weather to pay more than you agreed to at the closing table or walking away from your deal. There are some out there that also charge you up front fees, without any intention of funding you. We make it a point the a client never pays us any money - anything we get from a client (fees, points, etc) comes from the title company on the HUD statement.

Account Closed · Answer

think realty expo at national harbor. I have tickets for $35.

Any advice on Hard Money?

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