Hard Money vs Private Money

[Kyle Mitchell]

Hey BPers,

I am in the process of planning out my first flip and need some help with fully understanding how both hard money and private money works. I know the basics but can anyone tell my what the typical structure is for both hard money and private money? An example would be helpful! I am looking in the $300-500k range plus an additional $50-100k for the rehab. We would likely bring 20% to the table. Any help on this would be great, thanks everyone!

Kyle

[Christopher Phillips]

@Kyle Mitchell

Typical things for hard money: 1> points, 2> closing costs, 3> interest amount, 4> interest only terms, 7> 6-12 months with balloon payment at end of 12 months.

60%-70% of ARV max. Which includes purchase and rehab.

Some form of down payment, which depends on situation, the lender, and the borrower.

2-10 points at closing, which depends on situation, the lender, and the borrower.

Property purchase money at closing, rehab money with draws at certain stages of completion. 

Interest rates of 10% - 18% depending on your history with the lender.

Private lenders are basically the same but all the terms above tend to be more flexible depending on your relationship.

Example:

Property (3  bed/ 2 bath house) Price: $150,000

Full Gut Rehab: $100,000

Total Cost: $250,000

(a) Down Payment @ 10% - $25,000

Total Hard Loan - $225,000

(b) 5 points - $11,250

(c) 6 months 12% interest: $13,500

Total paid (a+b+c) = $49,750

Sold for $350,000

*Gross Profit (before commissions and closing costs) $50,250

*Gross Profit = Sold price - total paid - Total Costs (purchase and rehab)