Hard money Loans?

Question

When taking a hard money loan out. Do you pay a monthly payment back or how does it actually work?I am very new to this, but want to educate myself on the knowledge i need to be able to pull the trigger on my dream of being in real estate investing and residential redevelopment company for my community.

Eric Griemsmann · Answer

Thank you @Ben Stoodley. I appreciate all the info you just provided, it helped greatly.

Ben Stoodley · Answer

Hi @Eric Griemsmann - always good to call around a few different lenders and ask. However, they will likely be very general with their answers until you have an actual project to look at. Most lenders are mainly asset based. So the stronger of a deal that you bring them, the better the loan quote they can provide. Deferring payments until the end would only be an option on strong deals, for most lenders. Regardless, you will need to have some "skin in the game" with all lenders. At least some % of the purchase price must be coming from the borrower, usually at least 10-20% of the purchase. Even if deferred payments are an option, make sure to have extra funds to cover any unexpected costs or delays in the project that result in more/longer holding costs (deferred payment may not covered, as mentioned earlier). Some lenders allow for 2nd position "gap lenders" to come in behind their loan and fund your down payment (the 10-20%, or more) and some of these gap lenders also offer to pay holding costs. However, these gap lenders are usually quite a bit more expensive and/or ask for equity splits.

Many options, as you can see. There's plenty of money out there ready to be lent, so I suggest focusing on acquiring the best deals possible and you will have no problem lining up the money.

Best of Luck

Jeff Rabinowitz · Answer

@Eric Griemsmann, it depends on the lender, the project, and the borrower. Some lenders will want a payment every month, some will allow no payments until the project is ultimately sold. Some will defer payments for a few months. Some will defer payments for a specified term but will require payments to start if the project goes long (the loan enters default). Almost any scenario one can think of may be possible.

More experienced borrowers will be able to get the most lenient terms but if the project has lots of equity, the borrower brings significant personal funds and they have a well thought out plan, less experienced buyers may also be able to get short term loans with no payments until the project is sold.

Morenike Arraheem · Answer

Are there any companies that deal with new investors? I am not having any success with any so far. May need to search out an experienced partner.

Doran Summers · Answer

@Kate please contact me to see if I can help.

@Kate Howell

Kate Howell · Answer

Hi Guy,

I have a buyer that only has 2 weeks to close on a short sale ( due to horrible seller picked attorney). Wells Fargo won't give another extension due to docs expiring on Aug 19. Title is ready, buyers have 20% down, great jobs, great credit scores, and Wells is paying all the buyers closing costs, but now they need hard money in order to close in 2 weeks, (their lender needs 20 days). Question; How long on a conventional will they need to season the loan? Hard money wants 3 points and 12% and the buyers are asking me to see if I can find someone with more attractive rates. The buyers are great people long time customers, he has worked at UM for over 15 years and wife is a teacher.

Guy Gimenez · Answer

@Eric Griemsmann

This business is all about relationships, period. The more you build relationships with sellers, the more success you'll have.  The more relationships you build with people with money, the more success you'll have.  Once you've established yourself and proven you know your numbers, know your market, know your exit strategies....money will start coming to you instead of vice versa. It's a lot easier to make money when you're paying rates of 6% to 8% rather than 12% to 15%.

Doran Summers · Answer

please send me a pm for more information. @Chuck Webb don't want to break any rules.

Chuck Webb · Answer

@Doran Summers

Here are the numbers....

Market value

135,000

Appraised value

127,267

Purchase price

77,000

Seller contribution

0

Survey

400

Appraisal

450

Repairs/make-ready

21,270

HOA annual

400

Property tax annual

3,396

Property ins annual

1,255

Rent

1,350

Doran Summers · Answer

@Chuck Webb I would have to see more of the project to see how similar the numbers are to other lenders.

Hard money Loans?

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