All Forum Posts by: Kerry Boyle

Get an experienced partner with some cash - find them deals that aren't on MLS. JV with them.

All HML want some type of skin in the game. Even when our company does 100%, you still put down closing costs and points. Which are certainly going to exceed $1,000.

The only other way is to find wealthy individuals with no idea of what a good return is and ask them for a x% loan on 100% of the money with no payments and the hope you will sell it for a profit at the end. It honestly happens more often than you think - but careful! -There are rules against going to individuals and asking for money.

I recommend having an attorney help you coordinate the documents and entity. 

I highly recommend the following:

1. Only work with individuals you know and trust (preferably with experience, but your own experience should guide you).

2. Have an attorney make sure you are doing everything correctly (your closing package/mortgage/application etc).

3. Work in areas you know and personally ensure there is plenty of profit for the borrower. If you are unsure of anything about their project, make them use your contractor.

Personally, I wouldn't put my money into a HML unless it was someone I know and I really believed the deal worked. Risk is so high that the money gets tied up, project fails, borrower defaults and won't release the property to you and forces you to foreclose.

Factors include: LTV you are requesting, credit score, and DSCR. Additionally the type of property and where it is located plays a factor (usually 2-4 units are a bit more expensive in rate and NJ may be more expensive than TX) -not for all lenders, but these are things we look at.

 This is only correct if you take the entire year to complete your project, take 3 months and it only cost you $3,000. Speed is an important factor. Points aren't included in this calculation, as points are paid at closing, but are a simple percentage of the loan amount.

No worries, it is hard to get out of the mindset of how residential mortgages work and into hard-money loans (which are typically commercial loans).

 Yes, you are missing something. 

Hard-money loans are not amortizing. You owe 100k throughout the term and make $1,000/mo payments until you can pay off the $100,000. 

You also don't (typically) get an escrow for taxes and insurance - investors typically pay that off when they close, or when they come due to avoid penalties.

editing for calculation - Loan Amount x Interest Rate/12 = monthly payments. Much easier to calculate than an Amort loan.

 Ah yes, for us, you can pick you contractor so long as they are licensed and insured (if your state requires that). I also know there are lenders that give you, say, 20% of your rehab budget and tell you to complete it. When it is complete, they give you the next 20%. Streamlines the rehab and makes the most sense to me. But you are right. Most lenders do reimbursement.

There are lenders that don't allow you to use whatever contractor you want to use? I guess I can see a local guy forcing you into a specific contractor if you have limited experience. Is this something that you normally see?

Also, there are some hard-money lenders that advance your draws so you can pay your guys prior to the work being completed. Leverage is important to some.  Us HMLs are available to those who don't have an investor to finance every deal they run into. 

 Look for local hard-money lenders. They are the only ones who may not care about pulling your credit. Don't expect low rates with the guys who don't care about credit either...

You may want to use hard-money as an easy way to come up with the capital to finance the first BR of your BRRRR strategy.

Talk to lenders and see if it makes sense.

10/2 sounds like the purchase part of the transaction... I thought @Brendan Chase was asking about a take-out lender.

Right?

If a lender says they do 80% of purchase and 100% of rehab, then your down payment is 20% of purchase price.

If a lender says they do 90% LTC (Loan to cost),  then your down payment is 10% of the total cost (i.e. 10% of purchase + 10% of rehab).

Almost all lenders fall into one of these buckets, with different numbers.

As for your 10-12% APR, it typically covers the loan that is written... so you pay interest on the 80% purchase + the 100% rehab, even if they only give you 80% of the purchase at close. There are some lenders that don't have you pay interest on "undrawn funds". Check your lender for the specifics. As a newcomer to hard money - expect to pay interest on the whole loan amount.

As for saving money by completing early - check with your lender. Some lenders have a pre-payment policy, but most do not.