All Forum Posts by: Kerry Boyle

Most hard money lenders are algorithmic. Just make sure they disclose all fees when they give you a quote. Use referrals or ask for references to vet your lender. Teaming up with a partner may be a viable strategy as well, but I suggest getting your deal analyzed by a HML to see where you would make more money.

Consider the following example: You go 50k in and your JV partner puts 50k in and your profit sharing is 50%.

OR

You go 15k in and your HML goes 85k in; You paid 12% on 85k for 6 months and 3 points on 85k due at closing. So you actually went in 17.5k and paid about 5k in interest (assuming 6 month exit).

Which scenario generates more profit for you? Which scenario maximizes your leverage?

JV deals do have their place, but this example illustrates better leverage and profit with a HML.

Rates are typically 9-12% 2-4 points for hard money acquisition+rehab loans. 

States with judicial foreclosures tend to be a bit higher, and California (and most west coast states) tend to be a bit lower. 

From Silver Spring and you are investing in Delaware!? I feel like there is a lot of opportunity in your area. Curious why you chose Delaware. 

As for lenders, unfortunately I haven't run into anyone for Delaware. Good luck!

If you complete the project your financing cost would be 15% and 5.5 points with a $650 fee ($3,000 down with a refund of $2,350 means you are putting $2,350 down on the property with a $650 lender fee).

Sounds like you pay closing costs and your down payment at closing, are you paying the I/O payments monthly or is it due after the sale?

Overall, I find DHM to be a lender that specializes in providing a low cash option for potential investors. They do it at increased costs, so if you have the money to use a "normal" HML that requires skin in the game in the form of a down payment, you will find better profits - but perhaps at the cost of cash-on-cash return. Normal HML is somewhere from 75-85% of purchase price and 100% of rehab at 12% and 3 points. Loans typically are above $75k as well (purchase lending + rehab lending). DHM is a legitimate lender that isn't going to take your money and not answer the phone (at least from my experiences talking with their LO's and borrowers). I don't have any affiliation with them.

Doesn't take a lien position against the house. - LOL!

I'm actually funding one tomorrow in Buffalo - small world!

- do I need an LLC set up with a funded account beforehand?

Not necessarily, ask your hard-money lender what they require. If you are transferring funds from your own personal account, I don't think this matters. LLC creation is relatively quick and should just be completed right away.

- do I need to be pre-approved by a hard money lender before bidding, or are they ready to lend more so based on the potential of the property?

Being pre-approved and knowing their requirements is smart. You don't want to get stuck with someone who is lending only on the property itself - especially if you have a strong credit profile and good experience.

- how do I set up an LLC with an associated bank account, check writing capability, etc.?

You can google "how to set up an LLC in florida" OR you can talk with a lawyer who specializes in doing this... it will cost more, but may have benefits vs a one-size-fits-all online document. 

This is a fair point, JV does have value if you are new and you aren't sure what you are doing. Lenders will always make profit, unless the project goes wrong. A good lender is going to completely vet the project to reduce their risk. I'd be interested in creating a poll to see how much information lender's collect on the rehab/contractors for borrowers. I know one national lender with almost no vetting of rehab and I think a lot of their deals fall through because of it... maybe I'll create a thread/poll to see.

Wow and I thought Washington would be one of the states with Usury laws...

What do you get for 20% and 5? 100% financing and he runs the project for you? Actually sounds pretty cheap vs a JV still.

/edit Might as well add to the topic as well. I have heard 6% to 14% for private money rates. Hard money rates can occasionally beat private money rates... it isn't often said!

• Would you change anything about the above steps?
  • Talk to at least two local HMLs and at least two national HMLs before you go under contract.
• Is it correct for me to get the property under contract before I have the Hard Money financing approved?
  • It is typically done in this way (from my experience with my borrowers), however you can be approved contingent on the property with most lenders.
• What steps should I take to increase the likelihood of the Hard Money lender approving this deal? 
  • ALL HML's will not only approve the deal, but also approve you as a borrower. If you already know that you as a borrower are approved, and you know HOW the lender approves a property, you can go under contract with a fair amount of confidence that it will be financed.

HML typically look at the following for borrower: Credit, Assets, Experience, it is not uncommon for a criminal background check as well. If purchasing through an LLC - they will likely need to look at your entity documents.

HML will look at this for the property: As-is value and ARV through a BPO or appraisal, sound rehab plans, project can be completed on time, if renting: rental analysis.

In regards to not having used a hard money lender before: Figure out the as-is value, if you are rehabbing, how much for rehab and the ARV. Present those values along with your plan to a HML and that should be enough to get pricing.

Brent was right about having a solid exit strategy, but a good HML will have options for you based on the information they collected. If you had a 400 credit score and are relying on a bank loan to refinance, the HML does understand that you won't be able to get out of their loan via that route... alternatively, if you have a 750 credit score and healthy assets, refinancing shouldn't really be a tough sell. Let me know if you have any specific questions about dealing with HML's and, with the information above, how it would be likely structured.