Hard Money Unique Situation

[Rene Vizcarra]

Hello, Looking for any helpful information on my unique situation:

Purchased a home to fix and flip. It's a larger home and a big project in Colorado. The purchase price was 845k and the rehab was going to come out to 380k with an ARV of 2M.

During the process, our contractor unfortunately took our deposits and did not complete the job. We have a maturity of the Hard money note coming up Next week and need to find a solution.

With hard money interest, the total note will be about 980K.

We have an offer from another hard money to refinance however we would still need 500k to satisfy the first note. This offer would also give us enough capital to finish the rehab through a construction loan and draws.

However, we are also not opposed to having another team come in and complete the job if we were to find the additional 500k.

Just looking for guidance or anyone who has had experience with this or hard money companies that can offer the full amount to refinance this current loan.

It's a great property with a lot of upside but unfortunately was put in a difficult situation. Can send a portfolio and more information if needed.

Thank you,

[Chris Seveney]

Quote from @Rene Vizcarra:

Hello, Looking for any helpful information on my unique situation:

Purchased a home to fix and flip. It's a larger home and a big project in Colorado. The purchase price was 845k and the rehab was going to come out to 380k with an ARV of 2M.

During the process, our contractor unfortunately took our deposits and did not complete the job. We have a maturity of the Hard money note coming up Next week and need to find a solution.

With hard money interest, the total note will be about 980K.

We have an offer from another hard money to refinance however we would still need 500k to satisfy the first note. This offer would also give us enough capital to finish the rehab through a construction loan and draws.

However, we are also not opposed to having another team come in and complete the job if we were to find the additional 500k.

Just looking for guidance or anyone who has had experience with this or hard money companies that can offer the full amount to refinance this current loan.

It's a great property with a lot of upside but unfortunately was put in a difficult situation. Can send a portfolio and more information if needed.

Thank you,

I am confused. How many loans do you currently have? How much is the current lender willing to give you?  How much is left to finish construction?

[Rene Vizcarra]

New lender is willing to give 479k with 366k in the construction loan. However, the total will be about 979k so need 500k (980k-479k) to pay off previous hard money and interest and then use the remaining 366k to finish the rehab which will be taken in draws from new lender

[Bill J Fay]

Hi Rene,

Tough situation. What is the current condition of the property? Did the contractor walk out without doing any work? Are you able to get an extension with your current lender? Refinancing hard money to hard money is usually very hard, not to mention expensive. I would think about other options.

1) Extension with current lender.

2) Sell/rent - depending on the condition ?

3) Find a capital partner to work with.

4) Can you use other properties as collateral?

Good luck!

[Rene Vizcarra]

Thanks for the reply! It still needs a full renovation but I have all the scope of work and know exactly what needs to be done.

Seems as though this hard money has sold it off and looking to get it off their books.

If I sell in its current condition I certainly won't be getting what I paid and would have to bring a significant amount of cash to the table.

Do you by chance know where to begin to look for capital partners?

It's a great property with amazing potential. Certainly something unique to add to a portfolio but just need to find the right capital partner.

I do have 3 other properties for collateral..

Thanks,

[Ethan Gidcumb]

Hey @Rene Vizcarra

I'm sorry to hear about the situation with your contractor. I may be able to help you out. I've sent you a direct message

[Rene Vizcarra]

Hey @Ethan Gidcumb, I dont see anything in my DM but I just sent you one

[Mike Klarman]

Sadly, this is commonplace and not the exception in the GC world.  Lazy, sloppy, greedy.  Sad to see it at this price point.  I'm sorry you are in this situation.

All lenders have extension options which will buy you 3 - 6 months to line up someone to finish.  All I can tell you is if the GC shows back up, do not fall for his speeches.  If he did it to you once, he'd do it again.  Cause some people often feel that they are in too far and just need to finish with the current GC and I can tell you I've never, ever seen that work.

[Rene Vizcarra]

I appreciate that, thank you; yes, I won't accept him back and I already have some solid GCs lined up to hopefully see this project through

Thanks,

[Bill S.]

@Rene Vizcarra so it is a bit confusing about your situation. If your current hard money lender won't lend more than 50% of the original purchase price, it means they don't see the value in the property either now or in the future. That is a huge red flag. Based on what you are saying it causes me to question whether or not the end product has the value that you see in it. Not saying you are wrong just makes me pause.

In addition, the fact that the original hard money lender has sold the note is another flag of caution. Some lenders to sell their notes but many do not unless it is a distressed situation. Still you might be able to get the new note holder to negotiate with you as others have suggested.

You mentioned having other properties. If one of those properties is paid off, then many hard money lenders will allow you to cross collateralize and increase the loan amount. 

I have used a hard money lender that will loan in 2nd position for the additional collateral to increase your loan amount on the subject property. These lenders are much fewer as it takes significant effort and additional funds to foreclose on a 2nd lien and take out the first position on the collateral property to get their money back.