Partially borrowed Hard Money Loan downpayment?

[Collin Emerson Miller]

Hello, bp community,

Wanted to ask a few questions about hard money loans and the skin in the game part.

I understand that hard money lenders require that you have skin in the game, what I would like to know is how much skin in the game and how to approach them if not 100% of the down payment is your own money.

Let's say that you are looking for houses for 200-300K and you have 10K saved up.  For a down payment of 20%, it would be 40K-60K and that means that you would be putting up 16%-25% of the down payment with your own money.  If that is a large portion of money relative to you, how is that not skin in the game?

Also, how do you approach an HML with a scenario like this?

Lastly, if anyone would like to have a chat about this, I would love to connect.  

[Marty Johnston]

@Collin Emerson Miller this is very possible with a handful of Hard Money Lenders out there. We structure it with clients using unsecured personal debt - meaning no second position, or first position, and the Hard Money Lender can keep their first position. I call this "Gap Funding", and it typically only works well where you are creating value enough in the property to still exit both the HML and the Gap Loan (neither one is very cheap money generally).

Bear in mind, some HML's still don't allow for Gap Funds to be utilized as down money.. So be very cautious and make sure you're contacting them and asking the question. The trick is simply identifying the lender's who allow for this type of unsecured debt to be used as your down payment/cash to close - they're out there, trust me!

In short, what you're looking to do here can be accomplished, and many investors do so. It's not as cheap as seller financing, or rich uncle joe with the deep pockets who can give you 100% funding for 5-8%, but it's a very powerful tool to still obtain 100% financing through stacking your capital stack.

Hope this helps!