All Forum Posts by: Mark Safrin

- Yes actually Hard money lenders will sometimes let you borrow more than 70% of purchase (plus 100% of rehab if any) depending on the deal but you will indeed normally have to have some skin in the game, at least 10%.

- Yes Private Lenders are possible.

- Dont listen to the first answer, ( @Fred Shatzoff ) some HMLs will allow a second position. We for instance do. 

- A HML will always want first Lien position to protect his investment. A true Mezanine HML (second Lein position) is only remotely possible for very large purchases.

- I have only had limited experience with private lenders. These tend to be motivated owners willing to finance part of the deal to make the sale happen or close friends/relatives doing the purchaser a favor. They are usually last in line for repayment if things go pear shaped.

- There are professional private lenders who basically will partner with the purchaser for a share of the profits. I personally have yet to encounter this in conjunction with a Hard Money Loan. Perhaps others here have.

Even Hard Money Lenders will usually want you to have some skin in the game. Even if it's just 10% of purchase. Even if as-is value is much greater than the purchase price.

I would be cautious of any HML promising to finance 100% of purchase, because as the saying goes - there ain't no such thing as a free lunch.

Ah. I missed that. Correct, if I know that it is owner occupied then we HML's cannot lend on it since it's illegal.

Perhaps some of the other bulging brain types around here can chime in for a creative solution?

PS. Why not come to a Chicago networking meetup such as the Chicago-Real-Estate-Investors-Meetup

Besides all the people in Real Estate possibly enjoying a slice of Pizza you never know which devilishly handsome and witty Hard Money Lender might be there. ;)

Finding properties is your job (though you will likely get plenty of advice here on BP). 

When you have a likely property lined up, HMLs here in Chicago are only a phone call away. You can also drop in for a cup of tea. ;)

@John Doah Sure. A Hard Money Loan of between 12-24 months. Say 24 months to be sure (There are no prepayment penalties). You can probably get between 65% and 75% of LTV plus 100% of rehab money.

One of the things to keep in mind is that you also need cash reserves for:

- Servicing the loan from month one. The interest rate will not be cheap and likely not single digit.

- Rehab money to fund the first milestone if the rehab portion is paid in draws in arrears. 

- The purchase deposit - anything not covered by the loan. At least 25% of LTV, possibly 35%.

- Loan costs. Somewhere in the realm of $10K in points, fees, title, appraisal etc...

- Padding for Rehab costs over-runs and emergencies. I have lent on historic restorations and they tend to be expensive.  Down to even to the shape of the old fashioned drainpipes, the sprinkler systems...

Happy to answer any more questions about HMLs.

Wishing you the very best for this project. 

A few observations.

1. You need cash reserves even if you use a HML that lends 90% of purchase and 100% of rehab. This is because closing and other costs tend to be around the $10k mark, you probably need to fund rehab until the first milestone on the rehab draw which is often (usually?) paid in arrears, and you also need some reserves just in case, and I know this is unthinkable, the renovations end up costlier than planned, the LTV assesses less than expected - meaning you don't get the full 90% of purchase or acts of God make the fix and flip more expensive than you thought.

2. Be very, very careful about any offers to fund 100% of purchase. Most other HMLs like us prefer you to have some skin in the game. The ones I know about that offer 100% do one or more of the following: A) Have very high interest and origination points - like 15%+ and 5 points B) have insanely high closing fees of various types and C) please pay careful attention, the fine print on the LLC that will own this property of yours will state that the moment you don't make payments there is no foreclosure you can just get booted from the LLC losing all equity and rehab work you have paid into the property.

3. As a newbie fix and flipper, many HMLs will max their loan to you at 65% of LTV. Having your experienced friend on the loan might actually increase the maximum loan amount you can receive. Also will he be actively mentoring/partnering with you through this first flip? It may save you from newbie mistakes.

Anyway, common wisdom says better to build up your cash reserves first and find a HML who wants you to have some skin in the game.

I feel bad to say it but I suspect you have had a $9,400 life lesson. 

Perhaps consulting a lawyer (a free consultation?) might be worthwhile just in case there is some cheap recourse?  

MOST of all, if/when he comes back to fleece you for fees to make the sale happen or whatever, for heavens sake do not throw more good money after bad.

Best wishes. 

You can do that with a HML. And BTW unlike what some will tell you a HML can be a long term 30 year fully amortized refi loan too. Even short term HML are usually between 12 and 24 months in length.

However conventional loans, if you qualify and they suit your needs will be cheaper, considerably so sometimes.

Many people use a short term HML as a bridge loan. To rehab, to stabilize or to cash out refi because they don't qualify for a conventional loan or convention loans don't suit their requirements.

And yes you can refi after a short term HML loan after you have finished rehabbing. There are usually no prepayment penalties.

Hard Money loans generally have the highest interest rates, points on closing and various fees. They also tend to have minimum loan sizes.  You can get a piece of paper preapproving if that makes you or the seller feel better.

What many people do is they contact the HML before they close and say I am considering a property at address X. I will probably purchase it for Y. Its existing value is, in my totally unbiased opinion, probably Z and after have rehabbed it for AA$ it will likely be worth BB$. My credit score is CC and I have done DD rehabs/flips before. What can you do for me?

The HML is will usually be happy to briefly ention what he has to offer. The process up to this point can take 5 mins.

(Our regular, repeat flipping clients don't bother. They simply send in a loan application form knowing from previous loans what to expect. )

You can do this with more than one HML. Since the maximum loan size is a percentage of current worth (plus rehab money if any), the actual loan size that will be lent to you will generally only be known once an appraisal is done. So it's best to have extra reserves of cash in case your estimate of it's current worth and a professional appraiser's differ greatly.

You will still need a deposit for the purchase for what the loan doesn't cover and depending on the loan size perhaps $10k for closing and various other costs.

Networking in person at meetups is always a neat idea if it's possible. You get to know them in person and them you. They will often have some literature on what they offer. Personally my future goodwill can usually be assured with a glass of fine single malt... :)

As to whether there are better options than HML, that is up to you. Most people that go for HML do it either because they do not have the income or other qualifications needed by conventional lending sources or said lending sources might take months to close and you need a bridge loan for cash for that closing in a few weeks.

Best wishes.