Hard Money Calculation

[Raj Kissoon]

Hi Everyone,

New to investing, but have been studying and speaking with lenders. I am trying to fully grasp the HML calculation. Assuming I am approved for 65% of the ARV. In speaking with an HML this is basically what I was told:

Asking	$ 100,000
Purchase	$ 80,000
Rehab	$ 15,000
Total	$ 95,000
ARV	$ 115,000
Hard Money Loan	$ 74,750
"Skin in the Game"	$ 20,250

Can someone advise me if I'm doing this correctly?  If so, would the following be correct?  That my "skin the game" would be $0?  Obviously a deal like that would be hard to come by, but for the purpose of this exercise let's assume. 

Asking	$ 100,000
Purchase	$ 55,000
Rehab	$ 19,750
Total	$ 74,750
ARV	$ 115,000
Hard Money Loan	$ 74,750
"Skin in the Game"	$ -

Any help would be greatly appreciated!  

[Ryan Blake]

@Raj Kissoon

There are two numbers to consider. One is the LTV (Loan to Value) which you have stated is 65% vs the ARV. This is the maximum amount allowed to be borrowed. Next you will have your Purchase / Repairs covered number. Most are at 85% or 90% of Purchase / 100% of Repairs. What this means is that no matter the LTV, you will still need to put down 15% or 10% of the purchase price but all of the repairs are covered. If you find a lender that will cover 100% of purchase than yes, your "skin in the game" would be $0. You will always have to cover your points on the loan and any fees associated with it at close even if you are funding with 100% coverage on the project. I will tell you that 65% if very low in LTV. Most are at 70% some are at 75%. I would look for a new lender.

Example: A HML loan with 70% LTV 90% of purchase / 100% of repairs

ARV = $100k

Purchase Price = $50k

Repairs = $20k

Total HM Loan = $65k ($45k for purchase - 90% and $20k for repairs - 100%)

Skin in the Game = $5k

You will have your closing fees on the loan on top of this

Fees = $1,000 (est)

Points = $1950 (est with 3 points)

Cash to Close for the Loan = $7,950

Monthly Interest Only Payment = $650 (est with 12% interest)

Hope this cleared some things up for you. Tag me in a reply if you have any more questions.