Real Estate Professional

[Brian Faeth]

How are hard money deals structured currently?

[Lynn Bown]

Each hard money lender has its own program.  For purposes of outline I will try to cover the factors that are involved.

1. Value of the property ARV After repair value is usually the mark for the loan to value of the financing. The accepted ARV can be as high as 85% in some cases but the standard is 70% of ARV for the purchase, rehab, ALL IN costs is the desired max financing
2. Points. Most HML will charge anywhere from 2-10 points on the loan either up front or factored into the total loan
3. Interest. Interest will vary from 10-15% the target in most cases is below 13% this is usually paid interest only.  I have seen programs where there is no interest but rather a % of the final sale price.
4. Term. The term is usually 1 year max but can go into 2 years.  I have seen programs where the interest or fees will increase every 90 days.
5. Skin in the game. HML want you to contribute 10% minimum and usually 20% on the purchase price, 0-20% of the rehab, and you will be expected to pay the buyer closing costs.
6. Be prepared to justify your ARV, most will require an independant BPO or an appraisal before they fund, therefore put a clause in your offers "Subject to financing partner approval" or something like that and count on 7-14 days for this contingency.
7. Finally do your research on costs in your area and be sure to outline details of your intended rehab with line item costs
8. Ask about their draw down procedure.  Each one wil have a different criteria for each draw down and you may be expect to front the rehab and be paid on a schedule or inspection basis.  Some will charge up to 400 per draw down as a processing fee.

Again every lender is different but these are the things to be aware of when shopping for hard money.