Need a 100% finance hard money lender. Is that realistic?

Question

Hello everyone. I am a beginner, wannabe real estate investor. I have lots of education but have yet to do my very first deal. Needless to say I am very much wet behind the ears and do not know what I am doing beyond reading REI books. I also do not have any capital of my own to invest nor do I know of anyone in my social circle who has the monies I need to do my first fix-and-flip. I was thinking of partnering with a hard money lender but since I have no capital of my own I don't have the resources to pay for the HML in the interim between acquiring a property and finally selling it at closing.  Practically speaking, I will need a financier who will front the monies I need to do the fix-and-flip 100%. In exchange I will do all the  grunt work and upon sale of the property repay the loan plus 10% interest plus majority of the profits from the sale. All I ask is to get at least $5k from the whole deal no questions asked. I am willing to do this so I can gain the practical experience, build some capital and establish my LLC. In other words, I just want to get started. However, I am hard pressed to believe that anyone would be willing to do it. But then again I don't know if that is in fact the case as I have yet to foray into the real world of REI. I do recognize this is a huge risk for the hard money lender. So, is what I am hoping to be able to do realistic at all? If not, how then can I get started? I have lots of student loans from graduate school and have no DTI ratio to leverage. Financially I have no "skin in the game" that I can bring to the table except my work ethic, intelligence and integrity of character. Any information or guidance you can give me will be greatly appreciated.

Erik W. · Answer

@Cesar Esperat Jr, it's the oldest dilemma in the book...how can I get money if I have no experience, but how can I get experience if I have no money?

Look at it from the HML's view: for him to be comfy you would have to find such a screaming hot deal as collateral that even if you took all the fix up money and flew off to Tahiti the next day they could fire-sale the property in a week "as is" for a tidy profit.  So basically, you'd have to "buy" something for about 60% of Fair Market Value as is today, which is extraordinarily difficult to do, especially when you're new and have no systems in place, no advertising, no word of mouth, and no reputation.

So if you're going to have to find such an awesome deal anyway, why not just find a not quite so amazing deal for 75% off FMV (much easier!), lock it up and wholesale it to another investor and you take a $4000 - $5000 contact assignment fee?  Same results as what you're wanting to do with your first flip, but it's easier to find those deals and you don't have to find someone to float you the funds.

P.S. If you want to be a real estate investor, you don't want to get experience doing grunt labor rehabs.  You want experience finding under priced properties.  That will impress a HML much more than if you can swing a hammer.

Bala A. · Answer

100% Hard Money Lending is highly unrealistic.

Why don't you Joint venture (JV) with Investors, and discuss your exit criteria (i.e you want 5K per deal), and showcase what you can bring of value to the Investor to the deal?

Sharon Rosendahl · Answer

Experience is likely to mean a lot to a potential investor. I know that many hard money lenders give a lower rate for more projects under your belt. Do you have construction experience? Business experience? Real estate experience?

I have also noticed that a lot of hard money lenders will do 10% down on purchase price and 100% rehab cost. A part of the solution would be to go for a lower cost market. I live in the Seattle metro and fixer in the 700k range are not an option for me. I tend to buy further east where homes average $200k.

How bad do you want it? Making the assumption that you have skills that will make a lender happy and they are willing to loan to you with the 10% down, what can you do to come up with that money? If you really want it, there may be sacrifices you can make to get there. Let's say you need 10k for your down, closing and to begin rehab (you often won't be able to get rehab cash until you have completed a phase of construction, likely depends on lender). Can you get a part-time job to earn a little extra money to save? Can you give up something? Look at some frugal living websites to get ideas of where you might be able to cut.

House hack. It is easier to get a loan for your own home than for an investment. In some areas, there are first time home buyer funds. I know here in Washington, there is one that will lend you the 3% down on an FHA loan. House hacking may allow you to pay little or nothing for your personal living giving you an easy source for your savings.

The other day, I listened to a BP podcast with a lady from Detroit who was a waitress and single mom. She managed to get into investing out of sheer determination to make a better life. I thought it was quite inspiring.

Vivek Sapre · Answer

If we own the house 100%, is it possible to get a 80% loan like a new home buyers get at those low fixed rates.

PS: I am not asking about home equity loans.

Thanks

Maxwell Fontaine · Answer

Hey @Cesar Esperat Jr

Just keep in mind you should protect yourself with a builder’s risk insurance policy. If you are going to use some hard money lenders a lot of times need some construction insurance. If you need any help with that aspect of it please just let me know.

Michael Noto · Answer

In almost any facet of real estate investing you either need your own money or the experience/track record/financial profile to make people feel comfortable lending you their money. Not many ways around that.

Kris L. · Answer

It would be more realistic if you had a good deal of experience and some good personal relationships with HMLs.

Caleb Heimsoth · Answer

@Cesar Esperat Jr I didn’t read your thread but no, getting 100 percent financing is not realistic

Need a 100% finance hard money lender. Is that realistic?

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