Is it possible to get " pre approved " with a HML?

Question

I've connected with a broker, a contractor, and buyers in Portland, OR.  I have numerous properties lined up and investigated by my broker and contractor, and if I assume I can finance via a HML at terms quite often described in the BP forums, (70% ARV, 2 year contract, 15% etc.) I'm looking at multiple flips that will yield a very good profit if I use a formula created by my partners based on local knowledge and connections.

My partners are very busy people, and to tie them into these projects is to take them away from other opportunities, so out of consideration I'm trying not to make any moves I can't be 110% sure on.

The only way these plans move forward is creative financing, as my credit is currently extended (happily, I might add) and unavailable.  Therefore I will be using HML or equity partners, and time being sensitive in these deals, I don't think I have the opportunity to properly screen new equity partners.

So, I'm about to move forward, but before I go calling every HML on the west coast, does anyone have any experience in pre-negotiating funding without disclosing actual property details to make sure a lender is the right fit?

Tevis Verrett · Answer

I agree with Travis.

If you are so secretive as to not share, you will turn off a Funder.  Private and hard money is relationship oriented.  Why would I lend you $1MM if you start out the conversation holding back?

Also, we won't have that conversation until you have the property under contract, saving time and aggravation.  Finally, either liquid money or assets to cross collateralize for anything approaching 100%.  And as we are mitigating risk, be prepared to validate experience.

This will go a looooong way toward solid numbers in your funding solution.

Tevis

Ann Bellamy · Answer

Corey, you won't really know until you have a deal under contract, as @Jeff S  says.  Until you have a specific property, and your lender has given you a written commitment, you won't actually know.  And even then, as Jeff S, since BS abounds in our business, they may not deliver.  Find someone in your area with a reputation for delivering on his/her commitments.

Some lenders won't even talk to you until you have a property under contract.

Jeff S. · Answer

It sounds Corey, that it’s not you who you want to pre-qualify, it’s your potential lender.

As you seem to know, hard/private money lenders come in various flavors large and small and few are rigid in their criteria.  Everyone wants to do deals and no one will loan you money unless they believe you can perform.  That is, $2k won’t hold a deal up but $20k will, so make sure you come with adequate capital and expectations commensurate with your experience.  If you’ve never rehabbed, don’t expect the lender to take all the risk on a 90% or 100% loan. (Your profile indicates you “… have a very solid background in residential and commercial construction and remodels“.)

Assuming you meet their basic borrower requirements, in the end it’s always the deal that dictates an HML. While there’s no such thing as a pre-qualification (or a funding guarantee, if that’s what you really mean) you’d be wise to call several lenders and discuss their criteria and meet them.

Experienced flippers maintain relationships with a handful of lenders large and small and offer their deals to the best fit and as their lending criteria dictate. Stick with those you’re very comfortable with (they will do the same).  This is your best insurance of finding the money when you need it.

We spend considerable time socializing and meeting potential borrowers.  The truth is though, nobody cares about you or will take you seriously until you bring a viable deal.  Conversely, other than when the wire hits Title, you will never know that a lender can perform, and even then it’s a crapshoot.

Don’t think that size, i.e. how much money a lender has, or an address on Wilshire Blvd., dictates reliability.  The name of the lending game is to keep your money working, which means staying as loaned out as possible. This is true whether you can fund one deal or a thousand.  Hollow promises abound, even when backed by good intentions. You’re wise to spread your risk by working with several lenders.

Good luck, Corey.

Jeff

Bill Gulley · Answer

In those situations, always blame the lender, hey guys, the lender is now saying he'll only do X$ of this, we need to come up with X$, that guy really is a jerk, we'll never use him again! (until the next time and you can say he has a new program). LOL

I suggest you look under the sofa cushions, hit up the payday loan folks, got a car title? Credit cards?

When dealing with investors or others, never paint yourself in a corner you'll have to tip toe out of. :)

Corey Davis · Answer

Steven J. Thanks guys, it's not really the money I have an issue with.  It's having done deals in the past where someone says they can do something, only to find they didn't cover all bases, and I'm left compensating.  I really don't want to be that person, and in this deal, all numbers have to line up within a  two thousand dollar margin, or I look like I'm not performing.  Maybe it's only me that will see a significant issue at that point, but I want to feel good about my position in the deal at hand, and for me to do that, I have to be sure a hard money lender is the way to go.  I will find out soon enough (Monday)

Corey Davis · Answer

Steven J. two years is a typo.  Supposed to be two months.  My plan involves a turnaround time of probably two-three weeks before the property is back on the market, with buyer already interested, so my two months is just an example.

I intend to start selling my rehabbed properties before they are finished, on the premise that finishing touches are discussed with the buyer.

Corey Davis · Answer

Jeff S Na

Thank you.  You, sir, answered my question.  I will proceed in the normal manner and call several lenders in hopes of securing the right deal.

Steve Chaisson · Answer

My primary HML is my financial planner.  He keeps about a million in play with me on call for any deal.  He furnishes a funding letter to my attorney who forwards it to any party requesting proof of funds.  It has never been questioned.

Steven J. · Answer

If you've got 20 properties that are possibilities, to me, that says they all would be a deal in some way. Is there a possibility of doing the properties in a lump sum? Acquire them, use multiple developers/GCs, and then package the entire 20 properties. It would be a ton of research and paper work but if all of them together make a REALLY good deal you can perhaps structure the lending.

Corey Davis · Answer

@Tevis Verrett "@Travis Daggett to clarify: I'm viewing about twenty or so properties, all of which fit a specific business plan, but the final say on which property we choose is based on my contractor/designer. Therefore, I can't give specific property details ie:address because one hasn't been chosen, and in fact won't be chosen unless I can provide my end, hence the HML."

OK, to be more specific: I'm really NOT hiding details, I don't have the details because I have multiple properties to choose from, and will pick a property based on a response from a HML if I can get a "pre-approval " type of situation, hence the title of the thread.

I totally understand the normal route of acquiring funds from a HML, I was asking if there was a way of getting a lender to agree to some kind of figure in order for me to know I PROBABLY have the funds available before I made a move only to fall short on funding.

I guess my point is getting lost in this thread somewhere.  I was hoping to hear examples of other people pre-negotiating.  I'm just going to proceed with the normal routine and hope for the best...

Is it possible to get " pre approved " with a HML?

Most Popular Reply