should i use hard money to grow quicker

Question

i want to possibly use hard money this year to grow quicker   and can you use them for new builds  who should i use and  any tips?   ( im in Wisconsin )

David Jesperson · Answer

Hi Sabian,

I'm located in Wisconsin as well. Good Faith Funding is a popular hard money lender in my area (Green Bay) that lends statewide. I'm unsure if they lend on new builds or not, they do have a website where you can set a virtual meeting with them.

https://www.goodfaithfund.com/

Jay Hinrichs · Answer

out of 100 HML maybe 5 do new builds.. and zero will do loans for someone with no experience so that is going to be the key if you have experience or not.. if not they then like to see an experienced GC on your team.  Lima One does verticle in many markets you can check with them. Best bet though is a local community business bank..

Ryan Blake · Answer

@Sabian Ripplinger I agree with what @Noah Wright is saying. Call up a couple companies. If they don't have time to get on the phone and speak with you to explain how they work, then they will be even more difficult to get ahold of once they already have your business. Below are some key questions I would suggest asking.

Are you a direct lender?

This will be a gateway question. If the answer is no, that means they are a broker of some type. Typically this means they will take longer to close, may not have all the information for the companies they work with,  and most hard money brokers get their money by taking an existing product and adding extra points to pay their fee.

What is your investor success rate?

Another way to ask this is what is your default rate. This is important to know. Many don’t track this statistic as closely as they should which is why many lenders go under. I think it is probably the most important stat. You want to make sure they are at or below 5% to make sure they are able to stay solvent. You don’t want your lender to go out of business while still holding your construction escrow funds.

Can you provide me with the contact info of some recent borrowers?

Any good HML will be happy to share the contact info of borrowers so you can see how easy the process was and how well they treated the investor.

Can you share a recent closing document or HUD?

This will show you more evidence of the fees they really charge. Not all lenders will share this as they will need to get approval from the borrower before providing. If not, at least make sure that you get a term sheet. This should put in writing what the fees will be.

What is your maximum LTC and LTV?

LTC is sometimes referred to initial funding. This is the percentage of costs (purchase and rehab) covered by the loan. A general range tends to be 85% to 100% covered. LTV is normally expressed as a percentage and that percentage is of the ARV. A general range tends to be 65% to 75% of value. Lenders will lend the lower of the amount between LTC and LTV.

Do you require an appraisal and survey?

Most HMLs will require these. I am wary of the ones that don’t require an appraisal. Lenders that don’t require an appraisal will perform a desktop appraisal but will typically have a very conservative view on the value of the property to protect the company’s investment. This means you will be coming out of pocket more. Survey is a toss-up on whether or not it will be required. Know that every long term lender will require a survey and if something comes up on it when you are trying to sell or refi, you could get stuck in hard money without an easy or quick way to get out.

Is there a pre-payment penalty?

Some will require you to pay the interest through the term or another length no matter how long you hold the loan. Just make sure that you include this requirement in your costs.

What is your draw fee & benchmarks for the repairs portion of the borrowed money?

Know what your fees will be to take out the repair money borrowed. Draws are almost always held back until you reach certain points in the project or that work is completed. They will also charge you to have an inspection by a 3rd party or to use an app to make sure the work is done. I have seen this range from as low as $100 up to $300.

Do I need to pay anything before sitting at the closing table?

There have been numerous people on BP talking about how they paid application fees but they could never get their loans closed on any deal brought to the company. This is a practice by some less than reputable companies. One I saw charged $500 upfront to be pre-approved and would never actually fund any loans. Just beware. Most reputable HMLs will not charge anything until you are sitting at the closing table and all fees will be listed on the HUD-1 closing document.

And of course, what are the points, interest, and attorney/document/admin fees for the loan?

This will vary based on region but in general 2 – 5 points, 9% - 16% APR (meaning this is the annual rate so divide it by 12 to get the monthly interest amount), and documents fees can be from $600 – $1,900. The document fees are what will vary wildly from company to company. Just know them going in so that you can properly budget. You will also want to find out if payments are interest only or if some principal is built in. Most hard money will be interest only payments on the full approved balance of the loan whether or not if you have pull the draw funds for repairs.

If you have any other questions, post them in the same thread below so that we can all learn from the answers.

Kyle Deutschmann · Answer

You can certainly use hard money lenders for new builds. The benefit is significantly less red tape compared to working with your traditional local banks who also do new construction financing. Most hard money lenders will want to know about your track record - if you have no experience, partnering with someone who has a track record will likely be an easier path to approval (and likely higher leverage) than applying by yourself.

Corina Eufinger · Answer

Using local hard money lenders usually works best. Ask around in your area with investors. If done right using a hard money lender can be a great way to propel your portfolio with BRRRs.  One of the biggest mistakes I see investors making is they forget to address things like HVAC, siding, etc when they have access to a hard money loan.

Sabian Ripplinger · Answer

thanks

Noah Wright · Answer

There are hundreds of hard money lenders out there, ultimately I'd work with someone who has time to focus on ensuring you get a tailored mortgage instead of a cookie cutter solution. Happy to connect on this --

should i use hard money to grow quicker

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