Hard money questions

[Nick M.]

Hi, question here about buying investment property through hard money loans? How exactly does this work? Do you simply just go to a lender and drop 25% down? Also, how possible would it be to do - deal like this with the higher interest rates (10%)?

[Pete Perez]

@Nick M.

The HML that I have talked to have the following terms:

•  2 Separate loans (Rehab, and Acquisition)
• 10% down payment
• 1% monthly payment (If you borrow $100,000 you pay $1000 monthly)
• 2% points up front  

So if I borrowed $100,000 for 6 months this is what money would come out of my pocket:

• Down payment: $10,000 (meaning I borrowed $90k)
• 1% monthly payments for 6 months:  $5,400
• 2% points: $1,800
• Total paid out of pocket: $17,200

I am an examples guy. It only makes sense to me if I do examples. You will have to speak to lenders in your area and figure out what their terms are and run examples on deals. You have to build these costs into your deals.