Hard Money Terms/Break down

[Terry Drake]

For those of us who have never used a hard money lender, we have no idea how much out of pocket expenses we will need to get a deal done. Would someone be kind enough to break down the expenses, terms, what to expect based on say a 50k loan to determine OOP expenses and profit?

[Brian Levredge]

You are looking at 3-6 pts on the loan and a 12-18% rate with a typical term being 6 months, although you can get them for a year at increased cost. Your biggest determining factor for out of pocket is going to be if your HML lends based on LTV or ARV and at what percentage. If it's LTV your are going to have to come up with whatever percentage the lender doesn't provide in addition to your earnest money deposit, appraisal(s) and misc cash to close.

If your HML is based on ARV, it is possible to roll a very large percentage of the costs into the loan. I did a HML about a year ago where I was getting 75% ARV from the lender. I bought well below market which allowed me to roll almost everything into the loan itself. My out of pocket on the HML was the earnest money ($500), cash to close ($1000), and the appraisal ($400). That was for a loan that was for 50k, which I refi'd when the rehab was complete.

I would caution that there is quite a bit of variation from HML to HML and that my expenses were probably on the low end. Without knowing your exit strategy, I would caution you to make sure that you have solid, recent comps that will justify your refi, if you are doing one. When I did my refi, I was out of pocket another $1250 for two appraisals and an appraisal inspection although I was able to get about $700 cash back on the refi. This was done just before the HVCC guidelines changed and frankly I haven't bothered trying to get bank financing since then.