All Forum Posts by: Michael Kinsella

Being a licensed GC should give you a solid head start in the fix and flip game.

Hard money lenders evaluate loans, broadly speaking, on two criteria;

1) You (the borrower)

Below are some sample data points HMLs will often inquire about.

- How many comparable projects have you completed?

- What is your liquidity?

- What is your credit score?

As you can see from the above, HMLs are interested in your experience, your current financial position/history, and generally speaking, your likelihood of being able to successfully complete the project and repay them upon exit (sale).

2) The property

Below are some sample data points HMLs will look at regarding the property you choose to fix and flip.

- What is the property type? (e.g. SFR, duplex, etc.)

- What is the purchase price?

- What is the as-is value?

- What is the rehab or renovation budget?

- What is the after-repair value?

Broadly speaking, fix and flip HMLs are interested in what the property looks like now, what you'll do to it, and what you'll likely sell it for.

From the above two points, HMLs, within the constraints of their lending parameters, can offer you a set of terms.

To curate a list of HMLs, you can start on BiggerPockets by clicking 'Build Your Team' on the top nav bar, selecting 'Hard Money Lenders', and filtering by your state.

Additionally, you can google for HMLs in your area, and also attend local real estate investor events to see who other investors in your area have had success with.

"At the time, I was mad that the rate was so high and now I am grateful."

Yup. 

"Invested while deployed was tough. The lender kept demanding things, communication was poor, they would allow someone with power of attorney to sign for me, and more. All these issues came up and I still managed to close. Rarely do closing go smooth. Just keep asking for help and do what you have to to close."

Kudos to you on your persistence, and congrats on closing this one out.

"Would I want to arrange to do the rehab work before we close so the property appraises at the ARV value?"

A lender who is financing the purchase + rehab of a property will generally perform an appraisal that includes both,

1) the as-is value

2) the after-repair value

The after-repair value will be based on a scope of work you submit to the lender.

A scope of work will include repair line items and their respective costs.

"Could I get cash out at closing to cover the rehab or up to 80% for the ARV?"

Generally speaking, lenders financing the rehab portion of a loan on a reimbursement basis.

That is, you complete a portion of the work, submit an inspection request, the inspection is done, and you are reimbursed based on the amount of work completed.

80% LTARV is very aggressive. Many lenders will max out at closer to 65-70% LTARV.

Congrats on a successful flip!

I like @Mike Klarman's suggestion above about working with a responsive lender.

Below are some questions you might ask;

Experience

1. How many comparable deals do I need to have completed?
2. Do you offer a lower cost of capital/increased leverage for investors with more experience?

Cost

1. What is your typical interest rate?
2. How many points do you typically charge?
3. What additional fees do you charge?
4. Do you charge interest on the full loan amount, or just funded amounts?
5. Do you charge a prepayment penalty?

Term/Leverage

1. What is your typical term length?
2. What is your typical LTC (loan-to-cost)?
3. What is your typical LTV (loan-to-value)?

Assuming the property will be non owner-occupied...

"Is this at all possible?"

If you choose to go the HML (hard money lender) route, then you may run into some loan minimum issues.

Many HMLs have loan minimums ranging from 50k-100k.

"What are the rates usually on such loans?"

Right now, a reasonable estimate is a low double-digits interest rate (say 11%-14% for example) with a few origination points (say 2%-3% for example).

No.

Even 20% down for a vacant commercial asset, particularly a church, sounds like a big stretch.

When looking for highly unusual terms like this, an individual private lender is probably the most likely route.

Even then, I'm not sure how many individuals would be comfortable with a vacant church as collateral.

There are a few different debt financing options when it comes to fixing and flipping an investment property;

1) Local banks: These will often provider a cheaper cost of capital (interest rate, origination fees) than other lenders, but their underwriting guidelines are generally more stringent, and since banks aren't set up for the express purpose of financing fix & flip borrowers, they can sometimes be more slow moving. Also, some banks will be reluctant to lend on fix & flip projects.

2) Hard money lenders: Hard money lenders, in contrast, are set up for the express purpose of financing real estate investors. Their cost of capital will generally be significantly higher than a local bank, but they tend to move faster and be less stringent in their underwriting guidelines.

3) Private individual lenders: These are individuals that operate similarly to hard money lenders. Often, they can even offer greater flexibility.

The main red flags are probably:

1) Charging exorbitant up-front fees.

2) Quoting terms that are unrealistic given market conditions.

3) No happy clients.

You want someone who is honest, charges fair prices, who has a good understanding of current market conditions, and who has worked with and had success with borrowers in a similar position to you.

Awesome. Keep us updated please.

Doing the work yourself will definitely be a money saver.