What are some of the best ways to find Private Lenders in the NC?

Question

We are start up investment realty company wanting to flip homes in the Fayetteville area.  I have gotten the initial investment capital from Do hard Money, Lending company.  Just to get my foot in the door for our first flip. The more challenging part is funding the working capital for the rehab.  What are some of the best practices for this as a start up company.  Are their some private money lenders that might take a chance and be 2nd on a lien?  Any suggestions?

Alexander Felice · Answer

First, undercapitalization is the number one error new businesses make. So important to have enough capital upfront.

I also invest in Fayetteville and there is plenty of private money in that town, just gotta network and sell your idea. I've met and borrowed money from people I met here on BP in Fayetteville just by building relationships and helping out. It's possible

Build your network, build your track record. Also there are a TON of flippers in Fay and they are growing, lots of competition means you have to dig when starting out because you're out-experienced and out-funded.

Despite this, keep at it, you can do well in that town. Just takes some time maybe

Scott Hollister · Answer

@De'Shawna Graham,

What type of loan did you get? Terms and rate?

The private/hard money capital is very aggressive right now, meaning there is a lot of capital flying around. The best deal I currently see is 85% of the purchase price and 100% of the rehab UP TO 65% LTV.

So for round numbers this should be your capital layout:

• 100k purchase price. (You have to put down 15k) 15% down. 
• Lets say ARV is 200k, your limit is 65%, so the MOST amount of capital a lender will give you is 130k in a 1st position. 
• So they loan you 85k for the purchase, your rehab budget can go up to 45k.

True Costs:

• Points right now are anywhere from 2-4 (1 point equals 1% of the loan)
• Lets say 3 points, 130k x .03 = $2,600 due at closing along with down payment, interest, taxes, etc.
• Lets say you pay 12% interest, so annualized that is 1% of the capital you currently have out. The rehab will be in draws so you don't pay interest on that money until you utilize it. 
• So if you have 100k out, at 12%, you're paying $1,000 in interest per month with no principle pay down. 
• This will be a balloon payment at year one, so if you borrowed 130k, you owe 130k at time of sale or refinance.

Down Payment:

• My last hard money loan, with the exact scenario above, was $14,800 out of pocket at closing. I owed 6 months city taxes two weeks later, which were $2,500. I know, CT taxes are ridiculous:(
• 12 months interest payments: $12,000 (If you only use 100k)

Your question about 2nd

• There is no limit to your 2nd, 3rd, or 4th mortgages. The important thing here is putting your investors deeper down the line to be paid if something goes wrong. 
• As an investor, you should set a "golden" ARV that you should NEVER go above. If you do, it comes out of your own pocket. Typically 65-70%
• But no, no "professional" asset based lender will go into 2nd position. (That Ive worked with at least or heard of)

So to summarize after you were wondering about the working capital for rehab, you would need 27-30k plus of working capital in your name to get a project like this done. Thats with no surprises, etc.

Best of success!

David Seroy · Answer

Similar thoughts to what everyone above mentioned, it is doubtful any legitimate lender will take a junior lien position. You should search for a lender that will fund both acquisition and renovation on the property. If you need additional funding on the current project, you could just finance DoHardMoney out of the deal. The fact that DoHardMoney will not loan renovation funds, is a pretty big flaw. Modern day HML's who work with real estate investors assess a property based on it's ARV, which allows borrowers to get capital for the entire project.

For example, if someone is purchasing a property for $100K, renovating it for $50K and expected ARV (After Repair Value) is $200K, then a lender may approve a loan for $150K. Even though that $150K is greater than the purchase price, the loan would be structured as a draw loan. Meaning, perhaps $100K is provided up-front upon purchase, then the remaining $50K stays with the lender in escrow and the borrower can draw on it as they complete repairs. So, maybe the borrower finishes demo does some framing, then draws $10K on that loan.

This way it allows borrowers to be fully capitalized, but protects the lender from over-committing capital until the property has progressed, therefore increased in value.

This is a very basic example, but it should get the point across. If the property is increasing in value, then a lender mostly will not care if they give more money into the property. Essentially, when you're flipping a property, you are quite literally and figuratively building equity into the property, which allows a lender to disburse additional funds.

Feel free to connect directly if you have any other questions. Hopefully that helps!

Merrick Loveland · Answer

One of the easiest ways is to go to your different local Real Estate investment club meetings.  Even check out TREIA and some others in the Raleigh-Durham area.  I know @Adam Schneider could help you.

My experience has been the only private money guys that will consider being 2nd are those that are funding a very small portion of the costs (like 10-15K for rehab costs), but most are going to want to be in first position.  If you're looking for rentals, there are several that will fund your purchase as a bridge loan so you can still pick up properties quickly, then you'd refinance with a bank.

Best of Luck!

David Seroy · Answer

Unfortunately, I think this is a more of an issue with your deal financials, rather than the lender not willing to fund renovation costs. Look up the 70% Rule. It will be all over google and Bigger Pockets. Essentially, if your purchase price plus renovation costs are less than or equal to 70% ARV, then it is generally considered a good deal. Anything beyond that, means the margins are perhaps a little too tight and you may want to reconsider doing the deal.

If what you’re saying is correct, that 70% ARV does not leave any, or very little money for renovation, than I can already tell the margins on this deal will be tight. Again, no legitimate lender is going to be over 70% ARV.

Its not easy to do, but you need to create better margins and the rest of your issues will be solved. Whether you buy the property cheaper, ARV it for more or reduce costs, is up to you.

The 70% ARV is not going to change, so you’ll need to adjust accordingly on your end.

Hope it helps!

What are some of the best ways to find Private Lenders in the NC?

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