Gimme the Loot - What about Hard Money or Line of Credit funding?

Question

My partner and I are new REI's since 2018 who have employed the principles of the BRRRR method commanding 5 doors valued about $750k plus one door with projected ARV of about $250k by '23Q1 and one other door bought in a tax sale but currently locked in litigation. All of these properties were purchased using out own funds. We want to continue with our pace but we've safely tapped out. So, (1) What are the current hard money and/or line of credit rates (12/27/22) ?  (2) Besides the hard money lenders Bigger Pockets has listed on this platform for Tennessee, are there other companies that come recommended?  (3) Lastly, are there other recommendations from the BP brain-trust that are all welcomed and thanks in advance?

George Despotopoulos · Answer

Hard money is around 10.5% - 12.5% right now at like 80-85% of purchase price + 100% of rehab  on a 12 month term with no prepayment penalty. It's driven mostly by credit, experience, and the deal. I think it's important to not look at reviews and what's being said about any particular lender in forums like this. It's also important to see how in-depth or how much of a review a lender does before quoting you terms.

Joseph Coleman · Answer

@Amos Raymond  The rates that Lien referenced are roughly in line with what I am seeing, I would caveat this with a recommendation that you, 1. Get rates and terms from multiple lenders and give them a specific deal when possible. Highlight your previous experience to see if that will get you a discount now or in the future. 2. Do not only compare rates but compare the fees as well and what benefits the lender is providing you. Many lenders need to pass on legal fees or charge points (a flat fee charged as a % of the loan amount) to originate the loan, which are not included in the rate. 3. Ensure that you are aware of how and when the rate and terms of your loan could change depending on movements in the secondary markets. You can always check the rates quoted from the large lenders like, LendingOne, Civic and RCN on their website. As for finding lenders, Besides The BiggerPockets HML Directory or the BiggerPockets Lender Match (in beta), I would recommend talking with your title company to find hyper local hard money lenders that lend their own private capital as well. They can often bring more than money to the table, they can bring their expertise and network to ensure your deal goes well. The more expensive the money, the more value I would expect from a lender.

Owen Dashner · Answer

Your best bet is going to be getting HML referrals from other investors in your area.  Meetups and REIA's are going to be good sources of referrals for you.  When talking to HML's, always ask what all the fees and points are, not just the % rates.  Rates can vary quite a bit from market to market, so make sure to ask around and remember that points can really add to your costs.  You can many times be better off paying higher rates if there are no points/low fees if you are holding the loan for a short amount of time.

Michael Kinsella · Answer

(1) What are the current hard money and/or line of credit rates (12/27/22)?

There is often a sort of sliding scale that lenders will apply based on a number of underwriting criteria, e.g.;

- Experience (# of investment properties sold, or comparable projects completed within a given timeframe, like the last 3 years)

- Credit score (generally the higher the score, the lower the rate available)

- Leverage (LTC/LTV - generally the higher the leverage, the higher the rate)

The above list is by no means exhaustive, and the elements will vary by lender.

With that said, typical short-term HML interest rates right now are likely to be somewhere between the high single digits, like 9%, and the mid 10's, like 14-15%.

Also, HMLs typically charge a couple of origination points.

(3) Lastly, are there other recommendations from the BP brain-trust that are all welcomed and thanks in advance?

Try local investor referrals, for example at meetup events.

Investors who have had experience with various Tennessee lenders are likely to be able to point you in the right direction.

They can provide experiential as opposed to speculative guidance.

Best,Michael

Adrienne Green · Answer

Hi Amos!  Graduating to using HMLs is a natural progression.  @Mike Kennedy with Flipco loans in TN, and I recommend them!  I've had a lot of experiences with them and they do a good job.

Lien Vuong · Answer

Congrats on the success of your investing journey thus far! HML rates are around 11-15% at the moment and fluctuate depending on the market and your experience. Crowdfunding should be good site to get the private money source. Have you tried to fundraise and get some partners to scale? This is a natural step and will help you to grow into a larger portfolio.

Gimme the Loot - What about Hard Money or Line of Credit funding?

Most Popular Reply