All Forum Posts by: Kerry Boyle

Hi Stephen!

I will provide my perspective as a HML.

I was seeing if anyone can tell the good / bad / and ugly about getting this type of loan.

• This could be endless. Very succinctly, HM provides you with the cash to complete the project with people who know how to be successful in the industry, also leverage to increase your rate of return. Bad, there is a cost and it isn't cheap when looking at interest rate and points, but it is likely less than you will pay buyer/seller agents when selling on a flip. Ugly, be wary of fees charged up front and work with reputable lenders. Everyone should be able to clearly list all fees and costs to you.

How does the loan get paid back?

• You pay interest-only payments during the term of the loan and before the maturity date you either refinance or sell the property. That is what is referred to as an exit-strategy.

Is there a time-frame that the borrowed amount needs to be returned?

• Term varies and is typically between 3 months and 1 year, there are shorter and longer lengths - all should be considered when you are determining your exit-strategy.

Do a lot of starting out investors use this method?

• This is a popular way to invest for both first-timers and seasoned professionals. If you are able to get conventional financing and are in a strong position on your offer (buyers market that doesn't cater to cash-buyers too heavily) - the rates are better and often require less down payment. 

Can I refinance after the loan is paid off?

• Not sure what you mean here. If you pay off the loan there is no more loan! If you intend to sell, your loan is paid off at closing on the settlement. If you intend to refinance out of the hard-money loan, the payoff is provided to the new mortgage company.

I am open to attending REI meetups, is that a better place to look for investors?

• Again, from a lender's perspective: Most of our business is from referrals/brokers, but we do attend REI meetups and as a borrower it is a great way to meet direct lenders and talk to other investors to see who they use.

Feel free to connect and let me know if you have any questions!

From the perspective of a hard money lender:

Your income doesn't matter to us, we care about your experience, your credit history, and the property/assets you bring to the deal. Having no experience doesn't disqualify you. Find a good lender that you can grow and build a relationship and just talk to them. You will learn enough from the first call to see if it is a good fit.

Offer an amount that will remove their interest for putting it up on the auction website. The sellers will pay a percentage to auctioneers, and often properties at auction will go below actual as-is value.

Throw together a contract with a proof of funds letter as soon as possible - almost all lenders can provide that same day. I would probably give at least 14 days to close - depending on where you are and how fast a title company can turn around.

If I were selling, there would definitely be a number I think I can get at auction and would prefer to get a higher number without the auction fees.

The financing part: Too many factors unknown, but with tough work, you should be able to find someone to close it if you have enough money. I would want to know all the basics.

Send me a DM if you have any questions!

 
Completely agree, and for those of us not on the West Coast, rates are more like 2-4 points and 9-15% interest.

Larger hard money lenders will probably be reporting, where smaller local lenders won't.

There are definitely trade-offs. If you pay and are on time, it will benefit your credit longer term, but hurt your credit with high DTI short term. Larger lenders may have stricter requirements and report, but likely have better rates; smaller lenders more flexible, don't report, may be more expensive.

Tough calls!

This. If something goes wrong, first lien holders will get every dollar they are owed (plus foreclosure costs if it gets to that) where second lien holders only get paid what remains after first (and its fees/costs), up to the amount they are owed.

Second is not a good position to be in unless they are trustworthy and swimming in equity - but then again, a full payoff of the first so there is only one lien holder is probably cheaper/better for everyone.

@Omar Diaz

I have seen lenders do it for hefty points and interest rates - essentially taking the role of a JV partner at those rates. 6.5 and 18%.

12k is probably a bit too light. You can definitely make a deal happen with 20k.

It was recently suggested to me that your SDIRA can be your partner on a purchase, so there is that!

Yep. Talk to hard money lenders, talk to family and friends for private funds. Learn about Self-Directed IRA's.

I recommend building a relationship with a direct lender at some point so that when your family/friend money (if you have it) runs dry, you have somewhere to go.

Biggerpocket's marketplace has a handful of lenders you can give a call to per locale. REI clubs/meetings is a great place to meet lenders and network with other investors to see who they use.

I personally value responsiveness and clarity in process/cost - some advice for when you speak to a lender.

Free to send direct messages on BP also :).