Private Money vs. Hard Money

[Adam Steinebach]

Alright, so this is my situation:

I have a team of contractors that are ready to roll as soon as possible. I've got a project manager in place (because I can only dedicate part time hours to the actual rehabbing process), and I'm shopping several different properties in the area.

I was really surprised when I started doing some hunting and seeing 30, 40, 50 thousand difference in LP and Tax-assessed value here in Fort Wayne. So, everything is ready to go, now I just have no clue how to pull the trigger.

I don't have much in the way of start up capital. My credit is fair, not great (yet). I'm wondering which would be a more suitable use of my time (hence the name of the topic). Will I be forced to seek private money investors because I won't have a suitable down payment, or are there HML's out there that will lend against ARV with no down payment?

In addition to that, I could really use some guidance on what steps to take next here. I've made so much progress in the last month, but now I'm completely stalemated because I don't know what to do next.

And while I'm at it, do I need to make an offer on a house first, then contact the HML? Or should I get in contact with them in advance? I've heard some say that I need to have the house under contract before seeking lending.

Thanks friends!

-Adam

[Jeff S.]

Originally posted by Adam Steinebach:

I was really surprised when I started doing some hunting and seeing 30, 40, 50 thousand difference in LP and Tax-assessed value here in Fort Wayne.

Your comment above suggests to me you don’t yet understand how to evaluate a property, Adam. Assessed value is a number used only by the tax assessor and has no relevance to the After Repaired Value of a property, current as-is value, the list price (if that’s what you mean by LP), or any amount you should pay.

You’ll have to learn the value of a property to you, to make profitable offers. One benefit to using hard money, at least until you get your feet wet, is that you’ll get an experienced set of eyes on your deals. Unfortunately, with little money of your own, J Scott is right that you’ll likely have a hard time finding professional lenders interested in helping you.

You might have more success approaching friends or family, but the risk there is that no one will have experience valuing a flip. If you can get good at developing the relationships necessary to find good deals, partnering with experienced flippers might be another option for you, when you have something to bring to the table.

Jeff