Hey @Matt Hudson
You mentioned 6 months. Typically, on your first flip and rent, you wouldn't be taking on a project that would last that long. So lets say your taking on a 3 month project. Arbitrary number, lets say your loaning 100,000 from the HML. 2 points is really good! Most of the HML I work with are charging 4. So you are 2,000 in up front to originate the loan. Then you'r paying 1% every month, for 3 months, now your 5% in. So if everything goes well you have paid $5,000 for a $100,000 loan. But everything doesn't always go well, so lets double that to cover our bases. So your $10,000 out of pocket on origination fees. Then if your buying from a wholesaler, which is becoming increasingly popular especially for less established investors, your going to pay about 3% in closing costs. So, now you are 13 grand out of pocket. Title is going to be 1.5 %, so now your (rounding up) 15 grand out of pocket. Many hard money lenders require insurance, so thats half a point, (rounding up), now you are at 16 grand out of pocket. Then you have to pay another 1.5 % in closing when you resell. Say something else happens, lets round it up to 20k, again just to be safe.
This all sounds very daunting. Hard money is a DANGEROUS game to play. But, it is a tool. If you make 30 grand on the property when you resell/ refinance (A mediocre deal) you have gained two things.
1. 10,000 dollars
2. You got over the hurdle and did a deal.
Once you have actually done it, it is like riding a bike. Incredibly scary until you finally actually accomplish it. And you feel the wind on your face, then you don't stop until you're 16 and you get behind the wheel of a car.
Hard money is not for the faint of heart. But neither is investing in Real Estate. There is a number that makes every deal work, and in every deal everybody involved is trying to make money. The potential pay off is not the 10 grand, that is relatively easy, that is just a matter of finding a decent deal with room for financing expenses. The potential pay off is proving to yourself that you can do this. For alot of folks, It takes 10 years to get into that first deal and then 1 year to turn it into a legitimate business. I wouldn't take hard money off the table my friend!
