All Forum Posts by: Ben Stoodley

@Mario Cuartas all good questions. From my experience, I would say most HML have NO prepay penalty. Meaning you can refinance whenever you want. Some of the bigger corporate lenders may, because they're similar to a bank. I don't know if any private lender that has a prepay penalty, paying off a loan quickly is a good thing in my eyes!

Rehab requirements will differ greatly from lender to lender. Most will be reimbursement style as mentioned. Most will charge $150-$250/draw inspection + a wire fee.

Using a licensed GC depends on your experience and the specific project. I would think the bigger the project the more likely all lenders will require a GC. If you have a lot of experience and it’s a straight forward, mostly cosmetic flip, than maybe they won’t require the actual GC.

A lot of these decisions come down to LTV. If you are putting down more money than you will have more flexibility with the loans. The lender is your partner, so the more you work together - the better the rates and requirements will become.

@Bob Berland I know of a few. Let’s connect!

@Noah Taylor that stands for Joint Venture agreement. It is an investment agreement between two or more parties that spells out the capital invested and requirements/responsibilities of all parties during the term of the investment/project. This is an outside of escrow agreement, it's not recorded anywhere necessarily. However a lot of people want to also attach their investment to title in a 2nd position lien. After COVID, most lenders stopped allowing this. 

@Noah Taylor this question comes up a lot. There are actually HMLs that do offer 100% financing. However as mentioned above, they require this amount (purchase + rehab) to be less than 65% ARV. You will also pay higher fees for this high of leverage. Most HML start around 8-9% and these will likely start around 10-12% plus 3-4 points. So you pay for it, if you can find it. I would have to imagine that there are stricter UW and performance clauses as well though.

My suggestion is to always put your own skin in the game. The vast majority of lenders will require this and you will get much better pricing.

If you need to raise capital and this is your first deal than I'd suggest partnering with an experienced investor. You find the deal and manage but they'll help with the down payment and holding costs. Once you have your name on some deals you'll get much better pricing AND have your own money to put down. This is done with a JV agreement and or having them join your LLC or entity. Most lenders do not allow 2nd position loans.

@Max Katelouzos - yes you can def expect to pay higher fees, but still, nothing crazy. Rates are basically precovid levels. So for your first time, most HMLs will do one or some of the following:

- lower LTV (maybe 75% purchase + 100% rehab)

- higher rates (maybe 10% rather than 9%)

- interest reserves (prepay 3-6 months int payments)

But as mentioned, if you have a good deal, you’ll find the money. There’s plenty of money out there. Stronger the project and your financials the less your experience matters.

@Max Katelouzos - as I'm sure you've seen there are as many different reqs as there are lenders! That's simply because hard money is in the private industry, aka way less regulations. As mentioned , TRID and DODD Frank don't apply for MOST HML. The distinguishing point here is occupancy. 99% of HMLs will not lend on Primary Residences or Owner Occupied because they don't have the licensing to do these Consumer loans. If they did, then they need to abide by those TRID and Dodd and many many other regulations. This is why most HML will require you to own the property in an entity, so it's clearly biz purpose. However some HML are fine with individuals as borrowers assuming it's still clearly a biz purpose - flip, rental, etc.

HML range in size. Smaller ones will be more private and relationship based with more flexibility on UW and closing. There are a lot of nationwide corporate HMLs that have similar or better rates but much more strict UW reqs.

In general, here is what most of the industry is doing , from what I’ve seen:

- 20% of purchase price down from borrower

- 640 credit or so

- enough liquidity to cover down payment and 3-6 months interest payments

- prefer 2-4 deals completed but likely first timers will just have to pay a bit higher rates

- 8-10% interest ranges

- 2-3% origination charges

- $1000-$2000 doc/closing fees

@Bobby Gill so the benefits of a LOC (IMO) are that you don't have to pay points per deal. You pay point once for the total LOC upfront. Then you get to reuse/recycle that amount as many times as you want in one year. No points per deal, just low doc fees.

For example:

$1m LOC

2 points = $20k

9% interest paid on drawn amount

Borrower buys a deal and the loan is $500k. Borrower buys a second deal, loan is $500k again.

Borrower completes & sells both homes in 6 months.

Borrower buys deal 3 & needs $1m.

And so on.

This example the borrower used $2m worth of capital via loc in that calendar year but only paid $20k in points. Or 1%.

@Bobby Gill

This seems about right, a bit expensive to me, and quite different LOC structure than most I've seen as well. It's cool to see these different structures though. Most LOCs I see HML offer are only for very experienced flippers, usually around 2 points only our once PER YEAR (hence loc) typically $1m+ amounts.

Doc fees and UW fees are also a bit high. I would say for something like this it would be around $1000 or less to setup and no more than $750 per file afterwards.

Interest rates are normal although they're definitely going down. Most HML should be around 8.5-9% interest with 3 deals complete.

@Chris Mason mentioned something really important. With most private lenders you can build a relationship. This is more important than anything. As you can see from everyone’s response - most HMLs will offer around the same rates. But at the end of the day you need service. Someone who always picks up the phone and gets things done quickly. No headaches. They are your partner. So while every dollar counts, you’re going to win in the big picture with trusting reliable relationships.

Good luck, you’re obviously doing something right if the lender is coming down on rates!

@Ryan Armstrong can you shed some more light on the type of investing you’ve been doing and are looking to do?

Most private and hard money lenders may require the down payment to come from you or partners. So I’d make sure that is cleared first.

HELOCs are a cheap and flexible way to pull out cash from equity in other properties, quickly. But rates are so cheap that if you have good equity I’d consider a refi.

@Jesse Woodall

Few tips from the lending perspective:

1. Most lenders have similar requirements - $75-100k min loan amount, 65-70% LTARV max or about 80-85% LTPurchase + 100% rehab, 3 months of liquidity in addition to down payment, 620-680 min credit.

2. Local smaller more private lenders maybe more flexible on above reqs. National lenders maybe cheaper. Have a couple trusted lenders to work with, since every deal is different and so is everyone’s underwriting.

3. Rates are about the same as tip one with reqs, typically 8-11% interest and 2-3% origination, plus additional doc/uw/processing fees $1000-1500 per loan. With this being your first time, most lenders will price your first deal higher. Lower LTV lower rate as well. Work with lenders that are relationship based and lower rates as you build experience.

4. Make a good presentation. Without the experience of flipping in the past, you need to show your preparation through good project management. If you need to raise capital, make sure this is done prior and you have a JV agreement in place. Plan for contingencies in your budgets. Have multiple exit strategies.

Good luck out there!