Hard Money advice!!!

[Robert Nelson]

I want to purchase my first deal using hard money. I know the basics of it but what are some things I should be cautious of or look for? Any advice for a first-time investor using hard money to BRRR? I also know an investor who factors in his project management in the amount he asks for. Is that typical? any advice is helpful.

Thanks!! 

[Michael Krupp]

Hi Robert, As a local hard money lender in Maryland over the last 10 years, we typically lend 90% of the purchase price and 100% of the rehab costs up to 65% LTV based on the ARV. Borrowers therefore typically need 10% of the purchase price PLUS closing costs as their cash in the loan. The rehab costs should account for materials, labor, and project management along with contingency funds if you have the room to factor that in. We lend on both flips and rentals, there is not much difference to us with a loan. On either type of loan, you definitely want to make sure you have your team in place, realtor, contractor, tenant placement or property manager, etc. Understand lead paint laws and how you will deal with them and your comfort level.

The key piece for us on a rental loan, is to be relatively confident that the investor has the ability to secure a take out loan. So the investors credit, income, and assets, matter as well as the expected DSC or debt service coverage of the property,  ratio of loan debt to rent. Most banks look at a specific % of like 1.2 or better or something like that, though it varies.  I am not sure what exact things you want to be cautious of, though make sure your lender is transparent with you about all up front costs, with no hidden fees.  I know lots of investors that got hit with unexpected fees at settlement.  I would highly suggest you use a local lender rather than an out of state hard money lender, for they will know the market and be able to offer you a more hands on approach preferably with some guidance should you need or want that.  I am happy to answer any further questions here or via message or email.