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Updated over 3 years ago, 05/26/2021
Hard Money for Rehab
I have a general question about either hard money or private money for a rehab. I have a current duplex that is ready to rehab. I’ve got cash but would rather hold on to it for other emergency’s. Is there an option to get hard money for this or what kind of offer would I put together to friends/family that are interested in funding with private money? What kind of interest rate or return should I offer them?
Hi @John Stutz , from my past web searches for lenders. I've found many websites, companies, banks, credit unions, who offer rehab/renovation loans. A few may offer Asset Backed Loans (ABL), which uses the duplex as collateral. BP includes in their Network section lenders including HML. As far as putting an offer with F&F, a promissory note, notarized between you and the other party outlining the terms of the agreement should suffice. You can write it up on a word document, you can get a sample though web searches, I'm unsure if BP still offers resources such as contracts. You should absolutely consult a contract attorney to ensure the note is legally binding as certain states rules are very specific as to the criteria of a legally binding contract. Nolo, is a great website to ask attorneys questions regarding these matters, or simply pay an hour fee to consult a local attorney. For interest rate, I would personally offer a few percentage points above what they can get at the bank to sweeten the proposition. However, it could also depend on your relationship with that particular family member, they may want to only help you out and ask for 1% of there return.
@Deneuve Brutus thank you so much!
Originally posted by @John Stutz:
@Deneuve Brutus thank you so much!
Your welcome, Good Luck!
@Ryan Herting sure thing. What’s your number?
Does this duplex currently have debt, i.e. a 1st lien? If yes, are you looking then for a 2nd to cover the rehab?
@Patrick Prunty yes I did a commercial 15 yr note on it.
@John Stutz. Family/friends can be good way to get private money for your deal. With regard to the terms, it really depends on the deal. Each deal is different. You can either ask them what kind of return they would want to see if they are willing to lend and see if the numbers work for you, or you can write up your deal with all the numbers listed and state the expected return and present it to them and see their reaction. Being able to get a lien, how much you have in the deal, location, area, your experience are just a few variables the lender is going to likely consider. In this case it sounds like you already have acquired the property so that would lower the risk somewhat to the lender...You are looking at anywhere from 15 to 25% interest. Again that is very approximate as there is no specific guideline for private lending. Good luck!
@John Stutz
You could apply and get some term-sheets and then offer similar terms without fees to your network / family. Currently companies in our industry have up to 30 year terms and very reasonable costs and rates so you may find it worth it to go with one of those initial options.
Good luck!
- Dustin Lauer
Thanks for the info, and best of luck. FYI, in my experience, getting a junior lien for the rehab is tough...much risk in this transaction for the junior and generally, at least from my prospective, unless we're talking 50% CLTV (based on market value not after renovation value), there is no return great enough for the lender to take on this risk. That junior lender needs to be prepared to to pay of your 1st and take over this project if you misstep and default.