All Forum Posts by: George Krajacic

To answer your question one needs more information. First one starts by asking the following: “How much could one sell the property after fixing it up and pricing the property to sell within 30 days.” Once that figure is established then one subtract following costs:

• 1.Sale Cost (Commission and escrow)
• 2.Carrying cost (Loan cost)
• 3.Fix up cost
• 4.Desired Profit
• 5.Purchase escrow cost

After one deducts all the above costs from the projected sale price one ends up with recommended purchase price.

You can call me if you have any other questions.

Good luck,

George

Below is the answer I provided for the question posted on east coast. The question was little different but the answer does applies to your situation.

“Apparently hard money lending is a little different in California. There are very few HMLs that would provide 100% loans. If they do they will have some very stringent conditions to the loan. To start with lender would require upfront payments for the following:

1. all the points,

2. 6 month of interest

3. Closing costs

Additionally lender would require at least 30% of net profit and lender would have a right to take over the project if the borrower does not perform according to mutually agreed schedule. Usually lender would make this type of loan only to very experienced flipper.

Most California HMLs make the loans under following terms:

20% down payment

Interest- 10% to 12%

Points-2 to 4

Terms-6 to 12 months

Monthly interest only payments

Closing cost- 0 to $1,000

In this scenario borrower would keep 100% of profit. Usually this type of loan would be made on the properties where the purchase plus repair cost does not exceeds 80% of ARV.

Almost always, lenders want you to have a skin in the game”.

Matt, in your case, you are buying the property at 75% of ARV but hopefully that will be somewhat offset by the fact that you are going to have $300,000 with low interest. Also if refurbishment cost is more than $30,000 than you are starting to cut in your potential profit and that might jeopardize you being able to get the loan. Additionally this loan will be harder to get because it will be a small loan in the second position. The best solution would be to find the partner with $150,000 and not get a second loan.

I do not know if this helps, but you can call me if you have any other questions.

Good luck,

George

If you do not own a house and have a good enough FICO score to qualify for FHA loan then buy a duplex and move into one unit. Better yet, buy a fourplex and do the same thing. You will get excellent interest rate and low down payment.

Good luck,

George

Apparently hard money lending is a little different in California. There are very few HMLs that would provide 100% loans. If they do they will have some very stringent conditions to the loan. To start with lender would require upfront payments for the following:

• 1. all the points,
• 2. 6 month of interest
• 3. Closing costs

Additionally lender would require at least 30% of net profit and lender would have a right to take over the project if the borrower does not perform according to mutually agreed schedule. Usually lender would make this type of loan only to very experienced flipper.

Most California HMLs require the following:

• 20% down payment
• Interest- 10% to 12%
• Points-2 to 4
• Terms-6 to 12 months
• Monthly interest only payments
• Closing cost- 0 to $1,000

In this scenario borrower would keep 100% of profit. Usually this type of loan would be made on the properties where the purchase plus repair cost does not exceeds 80% of ARV.

Almost always, lenders want you to have a skin in the game.

I do not know if this helps,

Good luck,

George

Hi Albert,

Last 3 points you raised are good reason to have an attorney. If you really like the property and you think that it is excellent deal, why risk it? Attorney could also give you a good idea how long the sale will take. Can you do all this yourself? Yes. With good escrow agent and good title rep it can be done. But it also depends on how confortable  you are with structuring and  negotiating the deal.

Take care,

George

Hi Albert,

Let me try to take a stab at some of the issues, however I do like to say that you already got very good advice.

Question 1. - In either case you are getting financing, only difference is that private financing would be faster but it will cost you more and why waste money. You best route is to convince the sellers to give you minimum 60 days escrow so you can get FHA loan. Also many private money lenders do not lend on owner occupied properties.

Question 2. - Take the previous advice and get an attorney to structure the offer. Attorney should include number of safe guards to give you flexibility.

Question 3. – You should lock up the deal as soon as possible, even if you do it yourself. You can download a simple purchase offer from internet.

Good luck,

George

Most lenders would give you approximately 70% loan so you would need 30% down payment plus closing costs. If all your money is in the property being sold than the best option is to use both properties as the collateral. This way you get 100% financing plus the money needed for refurbishment. If the refurbished property is sold than sale proceeds will pay off or pay down existing loan. By the way, in most cases private money is the same money other call hard money. Most important thing is how good a deal is the four units you are buying. If the project can absorb 10 to 11% interest rate for 6 months and the charge of about 3 points and still be an excellent deal then you go to a reasonable lender that can get you money on time.

If you have any other questions feel free to call me.

Good luck,

George Krajacic-714.723.6024

To answer your question I would need a better idea of you overall plan.

For example:

1.What type of properties you are planning on buying?

2.What are you planning to do with the properties?

3.What is the price of the properties you are considering?

4.How long you plan on holding the properties?

5.Etc.

Good luck,

George

Assuming that your figures are correct you should be able to get construction and a takeout financing from a local bank. To improve your chance of success I would first find out if you could subdivide the land into 4 separate lots. If that is not possible the project still makes sense. Next you should talk to the local bank and find out what they need in loan request package. Naturally you should have well prepared loan request that including at least the following:

• 1.Complete job cost estimate prepared by a license contractor that is familiar with city requirements.
• 2.Rent study of the area so you can support the rents in your plan.
• 3.Market study showing that if the units are sold bank would be paid off and you would make a decent profit.
• 4.Your financial statement. Showing your income, net worth, cash reserve etc.

If you get “go ahead” from the bank there will be some conditions like the following:

• a)You will have to obtain permit ready plans. That cost most likely will have to come out of your pocket.
• b)You will have to have a signed bid from reputable general contractor showing a total coast of the project.
• c)Etc.

This is just general approximation and true requirements might differ and be more demanding

Good luck,

George

Ps, I prepared my answer before I saw your answer to Brent and I did not bother changing it to reflect things you already answered.

Hi Tyler, you can have all your questions answered by going to a local mortgage broker and asking him to prequalify you for the largest loan possible. Amount of the loan will depend on your income, credit score, other debts that you have etc. If you are going to have jumbo loan most likely it will be 80% loan.

Good luck,

George