Understanding Hard Money Lending

[Amelia Foronda]

I'm not looking for step by step but wanting to make sure my processing is correct.

I'm a realtor and have found a property I believe has potential for a great flip.

With absolutely nothing to offer money wise I would hate to let this opportunity slip between the cracks.

Here was my thought process after listening to podcast after podcast and reading constantly about hard money lenders.

1) Gather all information (comps, ARV, estimate from reliable contractor, all related documents, etc.)

2) Follow through with hard money lender to pay cash for property and renovations with agreed terms

3)Purchase property

4)Renovate

5)Sell

6) Pay back hard money lender (amount borrowed plus interest)

7)Done Deal

Obviously this is very over simplified, but I wanted to make sure my idea of what a hard money lender could/would do wasn't too far off for someone in my situation.

Am I missing anything? I'm ready to take that leap and ! am open to suggestions.
 

[Mike Klarman]

If you're an agent most lenders will give you a point of exp for a license, so that's good.

If you're a 680 credit this is what you can expect:

1) You put down 20% of the purchase

2) Since this is deal 1 you may not get 100% of the rehab.  You may only get 80 or 90%.  I'd have to plug actual numbers in to see.

3) You will pay two points which is 2% of total loan amount (80% purchase + 80/90% rehab)

4) They'll be fixed closing costs around 1,400

5) You'll need a 6 month builders risk HOI policy before you close

6) You'll need to spend about 1,300 for title work

7) Once you close, you need the first money in for the contractor to get started.  Most contractors want 25% down to start then 50% then 20% then the last 5% after all is done.  So if your rehab budget is 80k then that 20k to get started will come from you and then when work is completed you request a draw to be reimbursed.  That's the way these loans work unless you have enough experience to get advanced draws.

8) You can sell it so that is a bonus - but you'll want to cover steps 1 - 7, and you may also need a LLC set-up for the deal.