Reserve Funds Required For A Private/ Hard Money Loan

[Robert Bell]

As a private lender, we use reserve funds as a way to gage whether or not someone is financially ready to take on a real estate investment.  We use 10% of the loan as a rule of thumb.

Even though we can usually fund almost 100% of a flip, there are still many unforeseen issues that will arise.

We just don’t want a borrower to get in over their heads.

[Chris Seveney]

Quote from @Robert Bell:

As a private lender, we use reserve funds as a way to gage whether or not someone is financially ready to take on a real estate investment.  We use 10% of the loan as a rule of thumb.

Even though we can usually fund almost 100% of a flip, there are still many unforeseen issues that will arise.

We just don’t want a borrower to get in over their heads.

We are seeing a significant uptick in defaulted fix and flip and DSCR loans due to maturity defaults, liquidity issues and rising costs. It is smart to make sure of a reserve or your borrowers have the cash to get out of a crunch.