All Forum Posts by: Jeff Cichocki

@Adrian Hollifield, While most HML's who escrow funds follow a similar path, every lender will have subtle differences.

Here's a couple of examples..., 

1. it is common to be limited to 3 draws. However, some of us don't have that limit. I don't have a limit to the number of draws. My limit is dollar based. I ask that no draw be for less than $3,000 (I may increase this based on the amount of the rehab budget). The reason I do that is to help with cash flow. In my market, the prices of houses here is considerably lower than where you are in CA. You may be required to draw more funds at a time than I require.

2. Some lenders will only allow you to make the draw when 100% of the scheduled work, per the scope of work for that draw) is 100% complete. If you attempt to make a draw and even 1 item on the list isn't complete, the draw is denied. This is an extreme example, but it exists. Not every lender will allow you to make partial draws.

The point of the examples is to show you that some lenders are rigid and some are more flexible. Unfortunately, the correct answer to your question can only come from the lender you choose to work with.

Good luck!

@Dave DeMarinis & @Odie Ayaga are spot on. When I deal with a newbie, I make them get an experienced partner or it's a no go for me. I need to make sure that the project is going to go as planned and not fail. Experience matters. If you don;t have it, you should be bringing in a partner who does without your lender prompting you.

Remember, it's better to give a part of a deal than to lose the deal altogether.

Good luck!

@Shane Womboldt, here's a clue to whether or not this is legit...

4% and 1% down...

Hard money lenders don't talk that way nor do we give loans at that low of an interest rate or fee. Especially on that low of a dollar amount.

Also, because they are not legit, they don't know the lingo. The 1% should have been 1 point. The point is a fee that we charge for putting the loan together for you. It's how we get paid. We will never tell you it's a down payment.

Whoever you are talking to is a scammer. They are not a legitimate lender.

Good luck!

Hi @Robert Anderson,

I'm not a Massachusetts lender, but I would call the state back and ask them specifically about licensing requirements to become a commercial lender. Don't talk about hard money. No one outside our industry knows what it is. All hard money is commercial in nature. They're for business purposes and not against a house that your borrower is going to live in. Also, while you are on the phone with them, ask them what the usury laws are for commercial loans against real property.

I'm not an attorney, but I went to the Massachusetts state website to look up the MLO requirements. Here's the first sentence of the license definition for who is required to have a license...

Who Is Required To Have This License? Any natural person who for compensation or gain or in the expectation of compensation or gain: (I) takes a residential mortgage loan application; or (ii) offers or negotiates terms of a residential mortgage loan.

The way I read it, you only need to be licensed if you are taking residential mortgage loan applications. A RMLA is for owner occupants. As a HML, you would fall under the commercial laws. Like most states, I couldn't find anything that identifies licensing requirements for commercial loans. Most states that don't specify licensing requirements have no requirements.

Good luck!

@Clayton Hepler, I would stay away from the partnership. It can get pretty messy and costly to set up (everyone needs to agree to the operating agreement that your attorney drafts).

I would just offer up a mortgage & note to them. Here's a handful of ways to structure the mortgage & note...

1. Offer them an attractive interest rate. 

2. Offer them a flat percentage of the profit as their profit. This one can be a little tricky tax wise. The IRS may want to charge this to them as ordinary income as opposed to interest income.

3. Offer them a minimum amount of interest you'll pay. This one is great if you think you're going to sell fast. The faster you sell, the higher their yield goes.

4. Offer them a fixed interest rate plus a performance bonus that is based on the profit (i.e. 25% of the net profit).

One of the nice things about dealing with private individuals and not HML's is that you can get creative. The correct answer is... Whatever your investor wants from the deal. When we are on-boarding a new investor for our properties, we ask them what would make them excited to be in the deal. Or, what interest rate would make them feel comfortable and happy. In other words, let them determine the terms. It's great that you want to be generous. But, if you offer too high of a rate of return to them, you may scare them off. If they pick a low number, it's better for you in case anything goes wrong. When it goes well, there is nothing that says you can't just pay them extra money as a way of saying thank you. Love checks can go a long way in the loyalty department.

Good luck!

@Lincoln Kai, what state are you in? I'm not sure if I could help or not, but I may be able to give you a referral. Also, what are you looking for in a lender? I ask because rates and terms are not always the best indicator of what you need. Quality usually costs more. If I give you a referral, I want to make sure I get as close to your expectations as possible.

We make verbal offers on all of our properties before we go look at them. We do it to test the waters. We want to make sure we're in the ballpark before we make the trip.

It's not an exact science as much as it is an art. Negotiations over the phone takes a lot a practice. If you learn how to do it right, you can get people to sign contracts via email without ever having visited the property. I'm not saying we do that, but that's how powerful and effective it can be. I've got a couple of friends who wholesales nationwide and that's all he does. They never physically see a property, but they get the contracts.

Good luck!

@Jim Roach, I'm not saying this a great idea, but I don't think it's really that hard. Just buy the notes from her for a an agreed upon price. Transfer the notes to you so that you own them. As a condition/term of the sale, you will sign a note back to her (one for each note I buy) for the payment that you are committing to make to her.

These would be my two offers.

1. I would pay her a higher purchase price if we agreed to a performance based note from me to her. If I get paid, she gets paid. If I don't get paid, she doesn't get paid. For the additional funds she would receive (when it's performing), she would get a higher monthly payment.

2. I would offer her a lower purchase price and fixed monthly payment. She would receive this money whether or not I got paid. My purchase price and monthly payment would be significantly lower for me taking on the additional risk.

Then, I'd let her pick what she wants.

Good luck!

@Joe White, please be careful making blanket statements about "exorbitant" rates being illegal. Your statement does more harm than good.

Unfortunately, your statement is blatantly wrong. Especially when you start talking about hard money and commercial loans. Many states have no usury limits on commercial or hard money loans. The reason they don't is so that business owners can conduct business as they see fit. If a business owner agrees to a high interest rate loan, it's because it worked for them. Short of coercion, you know it's a good deal if both parties voluntarily do the deal.

I haven't heard of any that will do seconds. I've seen them give you a loan large enough to take out the first plus the extra capital needed. But, that will drastically alter your cash flow.

Have you looked at just doping a complete cash out refi against the the first loan plus what you're looking for? You should be able to get up to 80-85% LTV on a refi. Something to consider is to look at the blended rate of return between the first loan you already have and the 15% you're willing to pay. If you do a refi and the interest rate spiked by 2 points, it still may be cheaper overall than adding the hard money second. Most people don;t take the time to analyze doing a new 1st at a higher interest rate because they think that a higher interest rate on the 1st would ruin the investment. Often times, it doesn't and it's a great solution.

Have you tried any of your local banks or credit unions? They may be willing to something like that with a commercial loan.

Good luck!