Quote from @Jerika Demos:
Hello everyone!
I have found a property, well it kinda found me. I think this was all meant to be. An, although I am scared *hitless to jump in, I would be so dumb to not even try! So, here I am trying to figure out the money piece :D. Please, help a sister out!
With zero capital (for now) I will either need a personal loan or hard money. As of right now, I am leaning towards hard money.
When borrowing hard money, besides the higher rate and closing costs are there other fees that someone should be aware of? Are the closing costs higher? I am playing with numbers, but would love to have a better idea of what exactly to put.
I really hope I can make this work. This project would be a challenge, but I am so ready to take it on.
JD
Hey Jerika
Congrats on finding the deal. There are a few things I can add for you here.
First off, you mention you have zero liquid capital right now to put into the deal. That will likely be a problem for most legit hard money lenders. You'll find them mostly offering 80% loan to contract and a portion of rehab costs. So in that case, you'd still need to find 20% of the purchase price in liquid cash to buy the property.
Private money from a real genuine private investor might go to 100% if you know them, but its still a big risk for the lender, so it would most likely have to be someone in your network already that knows and trusts you. A fanily member for example. From the lenders point of view, if the project goes wrong (rehab cost overruns, valuation issue etc.) then they'll potentially be underwater and losing money.
If you're prepared to take the financial risk yourself, then you can use a personal loan for the deposit and some reserve funds, and hard or private money for the rest. If you do this, make sure you have reserve funds for rehab overage. Prices are going up weekly, and can almost guarantee that your rehab will cost more in 30 days than any contractor quote you get today.
People do this all the time. Its quite common for an investor to use a HELOC or some other line of credit as their seed capital. I've even seen it done with credit cards more then once.
First thing... figure out exactly what terms you can get from a lender, amd exactly what money you'll need for the purchase, and exactly what money you'll need for the rehab, the add 20% to the rehab budget to keep as a reserve. From there, you'll know what liquid cash you'll need to source.
Eg.
PP 100k
Closing costs 3k
Rehab 20k
Reserve 5k
Total Contract 103k
Hard Money Terms 80%
Hard Money Loan 82.4k
Liquid Cash Required 45.6k
To answer your inital question about costs and fees for hard money, it varies between lenders, but there will be 2 or 3 points and probably about $1,500 in processings fees. You may also be paying for appraisals etc. Again, this can vary wildly between lenders, so get a proper quote from an actual lender who is prepared to fund your project.
Pro Tip... never ever pay lenders any fees upfront. If they ask for upfront fees its likely to be a scam. Everythig comes out of closing.
Good luck with the project!
DG
