All Forum Posts by: George Krajacic

You already got excellent advice, I would just add that once you settle on the bank, that you will do business with, do all you personal and business banking thru them.

Good luck,

George Krajacic

I am the “old school” hard money lender but even old gizers change with time. Two years ago all my loans were around 12% with 1 to 2 years terms and 25% to 30 % down payments. Now the market is much more competitive and my investors will accept 8% to 11% return with terms up to 3 years and as low as 15% down payments, also on top of all that I will loan 100% of repair funds and I do not pull your credit repot or ask what your FICO is. Interest rates are mainly a function of the risk a lender is taking. So if one has larger down payment and or is experienced flipper interest will be lower.

Good luck,

George Krajacic

Hi Manuel,

In regards to your question, “Is this one of those cases when I won't get approved due to lack of "skin in the game?" Your assumption is correct. You will not be able to get conventional loan since the bank will know that you are recording a second and do not have money for down payment. The same is true of PML, you will not be able to get a loan without a down payment.

The way to go around your problem is to create a partnership where the partner provides the funds for down payment and the partnership get a loan. However, at this level, you are faced with a new set of issues.

Assuming the potential partner is not a family member you will need to convince him or her that his/her money will not be at a high risk. To accomplish this you have to demonstrate that you know what you are doing, the purchase is at an excellent price, and you realistically forecast a profit including a margin of safety. To prove all this one must provide a fix- up estimate, timing schedule, and market analysis to show how the profitability of the project is good.

However, if you do all this but this is your first project, it will be tough to find a partner for the down payment. So now the question is how do you overcome a lack of experience problem? This is simple. Find excellent property and partner up with an experienced flipper. If you do that once or twice you will be on the way flipping properties yourself.

Hi Ralphy,

I am a HML and I see that you got number of correct answers from other people and neither would I loan you the money. However it does not means that I would not create a partnership and do the deal with you if I was in NY.

If your assumptions are correct that ARV is $1,300,000 and it will take only $150,000 to fix it, then you have something of real value. You purchase price and fix-up cost are only 50% of ARV. That means that you could set a wholesale price at $800,000 or $850,000 and have flippers line up at your door to buy it. If you are new to flipping you could partner with a seasoned flipper learn the business and still make about $300,000.

Good luck,

George Krajacic

Hi Silvia, 

You are correct to say "Yikes" to a 20% rate. It seems high. However you did not give us enough information to formulate an educated opinion. Hard money lender's (HML) interest and terms will vary from city to city and state to state but the biggest impact on interest comes from a deal structure. By this I mean lending parameters used in the particular loan. E.G:

• 1.How much down payment is required?
• 2.How long is the loan period?
• 3.How much repair is required?
• 4.Is borrower experienced?
• 5.How desirable is the location?
• 6.e.t.c.

All above factors, and many more, will have an impact on the interest rate to a higher or lesser degree, so without knowing the lending parameters it is hard to address your concern. If the lender gave you 20% rate for 100% loan that also includes all repair funds, take it, it is a good loan. On the other hand if the lender requires 25% down payment and it is a 6 month loan look for different lender.

Good luck,

George Krajacic

Cornerstone Company

Hi David,

Small local banks are usually the best source for a small construction loans. I would first talk to a bank’s loan officer and find out what they would require in the “Loan Request Package”. By knowing exactly what the bank requires to consider the loan you would assure that the bank will at least look at you loan request. I would also talk to at least 3 or 4 banks to determine which bank offers the best terms that suit your needs. I have not build in many years so I can speak only in generalities. Some banks will require that you own the land free and clear (which you do!) and pay for all the soft cost out of your pocket. (Preparing and getting plans approved plus paying to pull building permits would be considered a soft cost.) Additionally banks might require you to cover 30% of hard cost. All this depends on local economical environment and the Bank’s response might vary from: “We do not land on a new construction” to “we will lend you enough money to cover all of your cost”.

Good luck,

George Krajacic

Hi James,

You already have some excellent answers and I apologize in advance if I give advice that has already been given. I scanned thru the posts and might have missed some answers. I have little different approach. I am HML and my advice is "keep away from HMLs if you can. HMLs are not well suited If you are buying to hold. In your case there is much simple approach. Since you are planning to live in one of the units settle for buying only 4 units and get 30 years FHA loan at 4% WITH ONLY 3.5% down payment requirement. "PROBLEM SOLVED"

I hope you qualify for FHA loan,

Good luck,

George 

When I lend money to flippers I insist for them to have a skin in the game. That usually means about 20% down payment. In my opinion, you should not be making money upfront by taking commission for purchasing the property. If you do take a sale commission it should not be more than 1% for listing side. With that structure 50/50 split would be fair. Again, this is my opinion! And remember most important is for you not to take undue risk with yours family’s money. It would be good for you to attend investment clubs in your area and talk to people with the same interest.

Good luck,

George

I am a HML and I am sure you know that if you came to me to borrow some money to flip a house you would be paying at least 10% plus few points, which means money would cost you between 12% to 14%. From your post I can see that you are experienced investor and that there is a good chance that in near future you would buy another duplex or maybe flip a hose. Now, let me make some assumptions about your proposed four-plex purchase. Assuming that purchase price is $200,000, with 15% down payment ($30,000) and 4% loan you monthly payment would be $811 per month. With zero down and 4% loan you payment would increase to $955 per month. Now, let's assume $144 difference actually causes you to have $1,728 yearly negative cash flow. If you stopped making higher payment on your 2 duplexes you could probably cove $1,728 negative on your new fourplex. However if that is not the case put a side two years reserve of $3,456 and go flip a house or two with remaining $26,544.

REMEMBER, THIS IS VERY CHEEP MONEY THAT IS BOUND TO DESAPEAR!!!!!!

You are on your way!

Good luck,

George

Hi Lanny

If you are willing to sacrifice there might be way to build a home you want without 15% down payment. It would entail finding a home that comes close to what you want and then getting FHA 203(K) loan and adding/remodeling to your liking. I am not familiar with 203(K) loan requirements so you should first check if what you want can be accomplished with that loan.

Good luck,

George