Hard Money- Where do I even start?

[Arianne Craig Jolla]

I'm preparing to buy and hold as rental property (BRRRR, I'm thinking). If I rely on my own funds, I'll be able to get one deal done by year's end. I'd prefer 2-3 deals. What's the best way to find hard money/private lenders to accelerate my process?

[Ben Stoodley]

@Arianne Craig Jolla - you’re in the right place! Reputation and credibility goes a long way. Always try to find fellow investors who have used the hard money lender prior, if possible. Some basic things to look out for:

1. Rates: interest has gone up 1-2% on average since Covid. I see most loans at around 10% right now, closer to 12-13% for first timers. Interest is typically decided by experience and fico.

2. LTV: the loan to values have decreased by about 10% since Covid. Most lenders will lend up to 75% of purchase + 100% of rehab. Maybe less for your first time.

3. Prepay: most lenders do not charge a prepay penalty but always double check.

4. Extensions: with so much unknown in the future, you may want to ensure a 6-12 month extension is available if you’re trying to refi and hold.

5. Reserves: most lenders will require at least 3 months of interest reserves right now, given the Covid effects.

If you can partner with someone experienced for your first few deals, you'll save a lot of money. Either way, leveraging a few deals VS using all your cash on one is definitely a smart move in my opinion. You just want to be very detailed on your cash flow projections during the HML. High rates extended for too long of duration will kill your deal. As already mentioned, bank takeouts are changing too so you need to have backups in place. Many hard money lenders offer a rental loan product now, 5, 10 and 30 year terms with rates in the 6-8% range, as an example back up back up.

Hope this helps!