Orlando, FL · Member since 2019 · 25 posts · 10 votes
I am a first time investor in Orlando Florida and I am looking to start with some flips. I have a GC who I am looking to partner with and a few investors (who are already business partners.) They really want to invest in real estate but don’t have the time.
My question is how to go about financing.
I am leaning towards having my investor pay the down payment on a hard money loan and then paying them back an interest and possibly some points on their investment.
Is that realistic or a good idea?
How much interest or points should I approach them with as an investment opportunity?
That is one to approach things, will you be looking to keep the HML for the duration or will you be interested in refinancing out into a conventional loan? You could refi out of the HML with a cash-out and pay your partner on the back end or pay them over the term out of rents collected.
Feel free to message me if you have questions or want any additional advice.
In this case, why use a HML at all? I would give your private lenders similar terms that a HML charges and avoid hard money all together. I talked to a HML recently and they will finance 80-90% of purchase price and 100% of rehab. They charge 10.75% + 2.5 points and a $885 processing fee. All that is for a 12 month term.
The advantage to using a private lender is you can use whatever contractor you want and you don't have to get paid in draws. You still want to pay your contractors that way so you know the work will get done but its easier for you to just have access to the money you need when you need it.
Thanks so much for your reply! You are right. I think private money is a much better approach.
So I think I’m doing something a little bit different right now. I am actually planning on partnering up with my General Contractor. My team is going to be sort of a family business. Basically I am going to find deals and investors and then he is going to focus on the flips. I will help as much as I can. We are going to split profits and I won’t be charged the typical GC fees. He’ll be doing a lot of sweat equity. I am going to get my real estate license as well to help save money on finding deals and the fees associated with agents.
In this case, why use a HML at all? I would give your private lenders similar terms that a HML charges and avoid hard money all together. I talked to a HML recently and they will finance 80-90% of purchase price and 100% of rehab. They charge 10.75% + 2.5 points and a $885 processing fee. All that is for a 12 month term.
The advantage to using a private lender is you can use whatever contractor you want and you don't have to get paid in draws. You still want to pay your contractors that way so you know the work will get done but its easier for you to just have access to the money you need when you need it.
There are lenders that don't allow you to use whatever contractor you want to use? I guess I can see a local guy forcing you into a specific contractor if you have limited experience. Is this something that you normally see?
Also, there are some hard-money lenders that advance your draws so you can pay your guys prior to the work being completed. Leverage is important to some. Us HMLs are available to those who don't have an investor to finance every deal they run into.
@Kerry Boyle I could be wrong here. I'm no expert. But from what I understand, most HML's will get the work inspected and make sure it is 100% complete before issuing a draw to pay for it. And often times they want to see that the contractor has credentials and pulls permits so they know they are covered. Its just a risk management practice that a HML will do.
@Kerry Boyle I could be wrong here. I'm no expert. But from what I understand, most HML's will get the work inspected and make sure it is 100% complete before issuing a draw to pay for it. And often times they want to see that the contractor has credentials and pulls permits so they know they are covered. Its just a risk management practice that a HML will do.
Ah yes, for us, you can pick you contractor so long as they are licensed and insured (if your state requires that). I also know there are lenders that give you, say, 20% of your rehab budget and tell you to complete it. When it is complete, they give you the next 20%. Streamlines the rehab and makes the most sense to me. But you are right. Most lenders do reimbursement.
@Matt McGuire we do something similar to what @Kerry Boyle is referring to. We'll give an advance to help get the project going then, upon their first draw, we'll expect that the percentage of work the initial draw is completed along with whatever the newly requested draw is.
Ex: $50k construction budget
We advance $10k which comes out of the construction budget. First draw request comes up and it's for $10k, when the inspector sends us his report we expect to see the project 20% complete.