Hard Money Basics

[Michelle Sanchez]

Hello!

Do any of you have good hard money bank referrals based out of LA, Orange, or Riverside?

Also, what do you need to qualify for a hard money loan and what are the lender requirements when finding an investment property? Does the lender require an appraisal contingent upon approval? Also, if you have any tools/SOPs feel free to share.

Any feedback is greatly appreciated!!

[Matthew Kwan]

HI Michelle, I would recommend @Israel Lopez from Certain Lending! 

@Albert Bui @Carlos Valencia

[Jack Tulloch]

Hey Michelle - Bigger Pockets has some suggested lenders under the BUILD YOUR TEAM section I would recommend checking out. Hard money qualification is typically experience, credit score, liquidity, and potentially appraisal. Some lenders do in house valuation and do not require an appraisal for hard money deals but that will vary lender to lender. 

[Albert Bui]

Quote from @Michelle Sanchez:

Hello!

Do any of you have good hard money bank referrals based out of LA, Orange, or Riverside?

Also, what do you need to qualify for a hard money loan and what are the lender requirements when finding an investment property? Does the lender require an appraisal contingent upon approval? Also, if you have any tools/SOPs feel free to share.

Any feedback is greatly appreciated!!

 Hi Michelle,

It depends on the private lender you're going with some local outfits will not require appraisal as they have their internal metrics, they know the area, and may only do a drive by. Some other private lenders will want an appraisal done to satisfy their guidelines because those products might be sold after origination/funding so you use whatever product you need for the given time frame and project you have and speed you need to get the deal closed.

Typically its 10-30% based on purchase price up to 70% of ARV or after repair value. The lower down payment or higher LTV/leverage/loan to value options are based on folks with "experience."

Typically experience is deemed as 5-10 exits (sales/solds or refinance out of private/hard money) in the last 3 years. Its a very common question, many will ask what is deemed as "experience," to a private lender?

To get that 10% down up to 70% of ARV and the most favorable rates you'll want to be 10+ exits in the last 3 and have typically 6+ months of liquidity or reserves to service all your mortgage payments. This is like having 800+ fico and very low DTI or debt to income ratios for a regular conventional lender with 12 + months of reserves. As a prime lender or A paper or conventional lender, we'd consider this borrower to be prime A+ and the same would be for most private lenders on fix/flip programs.

Each type of lender has different criteria for what they consider to be a prime A+ borrower.

Hope that helps, let me know if any other questions arise on that topic.

@Matthew Kwan

@Carlos Valencia

[Eliott Elias]

Every lender is different, all want you to buy a good deal and will check you on your ARV and construction budget. Some require appraisals, I think that's foolish.

[Andres Saias]

Hello,

Every lender has different guidelines for loan approval, they will take a look at property location, previous experience ( not required but it does affect the deal), credit score, loan amount, and liquidity. Some lenders will ask for appraisal others will do an in-house valuation. They will also ask you for a down payment somewhere in the range of 15%-30%.

[Will Barnard]

Michelle,

The answers above are all good and correct, so I won't regurgitate them. As for referral's, you can check out preferred lenders here on Biggerpockets or do a google search for them, there are tons in So Cal. Check out The Norris Group, they are very reputable and have been in business for many many years. 

Also, many people often interchange the terms hard money with private money. Make no mistake, there are differences. Hard money lenders are licensed in the state or states they lend in, they often lend other people's money and they often have stricter loan docs, terms and costs. Private money are individuals (who could also hold a license in some cases) who are often friends, family, business associates, doctors, etc who are looking for investment options outside of stocks/bonds/mutual funds/CD's/Etc.

[Randy Rodenhouse]

The hard money lender will look at your track record...in other words have you done any deals in the past. They will also look at your credit. They will also look at the deal itself and see if it's a solid deal and then based the loan on 65 to 70% of that value. Yes they will get an appraisal for the property in most cases.

[Alex Bekeza]

Experience, FICO, and the LTC vs. ARV of the subject property are the main factors. Happy to chat through those SoCal deals with you. We're based in Los Angeles and work with an array of different hard money lenders. 9 times out of 10 right now we're doing a virtual inspection and internal ARV analysis instead of a full appraisal.

[Mike Klarman]

So to be a whale in this industry you need:

Lots of cash
Lots of Experience
Lots of Credit

If you have all three in spades, God Bless you, finding people to throw their absolute best loan programs at you will be zero problem.

If you have 0 experience, I'd make sure the cash and the credit are good.  When people produce bank statements into the six figures - lenders love that.  If you submit your app with your 150k statement and a screen shot of your 750 credit score then I'd say you are way more likely to grab a lender than a 0 exp who has no money or credit.  

I'd say getting that first is toughest.  Worst rate, worst leverage.  So you'll need to be liquid for sure.

Not sure about those areas in Cali you mentioned but I know real estate in Cali is expensive generally speaking, and construction budgets can easily run 100K+ so you're talking about some heft loan amounts possibly.

[Mark Redmond]

Hey Michelle, dm'd you