What's a current typical hard money rate?

[Leland S.]

I've got a deal I'm under contract for with a hard money lender providing 12% annual and 3pts on up to 75% of ARV. This sounded like a standard rate so I was going to apply. Just curious if this is agreeable. Any gotcha's I should be concerned with? I plan to take 150k out for a flip that hopefully should sell in 3 months. Located in Nashville TN.

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Originally posted by @Leland S.:

I've got a deal I'm under contract for with a hard money lender providing 12% annual and 3pts on up to 75% of ARV. This sounded like a standard rate so I was going to apply. Just curious if this is agreeable. Any gotcha's I should be concerned with? I plan to take 150k out for a flip that hopefully should sell in 3 months. Located in Nashville TN.

What you need to know before hand is that the ARV is fluid. It is whatever *they* think the property is worth. And I can assure you that you are more optimistic about ARV than they are. It's not uncommon for a HML to claim only 80% of your ARV as Their ARV. For instance, Your research shows it is worth $200k and you want 75% of ARV, they then decide that "true ARV" is $160K and offer you 75% of $160k. So, ask them how they determine what they will lend before you make your plans.

Never give money up front to get a loan from a HML.

Another thing to be careful of are their "junk fees", that can be substantial and varies hugely from one HML to another. Ask for a list and cost of each closing cost beforehand.

Ability to close is essential. If they are using their own funds and are liquid, they can move rather quickly. If they have to wait for another project to pay off, you could be delayed by weeks. And the most annoying is the "broker" who leads you on to believe he is funding the project himself (technically he might be) but has to go out and find funding to fund the loan. Meanwhile you are twiddling your thumbs waiting to see if this guy can actually perform.

Another problem can come in with their contract. What happens if everything goes wrong, you get it on the market late, the market cools, the property won't sell and the balloon is due? Many times the HML will wind up with the remodeled house on the fix & flip investor's dime. You lose the property if you can't find a way to pay off the HML. Have a backup exit strategy.

As to the interest and points, I can get 12% (and lower) with No points all day long locally, but some of that is because I've been at this for a number of years and I can show projects I've done from start to finish along with the profits made. Your mileage may vary.