All Forum Posts by: Mark Safrin

I would consider purchasing mortgage notes. Either by yourself or in syndication. 

Most of the vast sums we lend out each month that we decide not to carry ourselves, are either purchased directly from us or, more likely, go to a 3rd party public clearing house where the mortgages tend to be quickly bought by investors. (I can point you to that clearing house privately if you are interested).

You say you don't want a second job but want to diversify into property. This might be an approach to consider.

- LTV is the current As-Is value.

- ARV is the After Repair Value

- Purchase price is your purchase price.

A HML may wish to lend using any of the above as loan caps. For us the LTV and ARV is determined by appraisal.

We for instance might lend up to the lower of either 90% of Purchase Price or 75% of LTV - Whichever is lower.

On top of that we might lend up to 100% of Rehab (if any). Why "up to"? Because the total loan size including rehab cannot, for us, exceed 70% of ARV.

Hope this helps.

A HML will always take first position. Some will allow a second position including for a motivated seller who is willing to finance by taking a second position lien.

(There are exceptions but nowhere near the $ level you are operating on if you are asking such questions on BP).

In addition the vast majority of HMLs have minimum loan sizes. Usually $75K or even higher. 

The way to consider doing this is a HML for the 1st position lien for the majority of the loan and the motivated seller taking second position and paying whatever the HML doesn't cover. Don't forget there are also loan costs either the seller has to cover or you do.

For us, we are happy to have the appraisal re-assigned to us. The appraiser usually charges the borrower some money (probably $150) for the honor of him (the appraiser) bestirring himself and lifting his typing finger to change the the lender name at the front of the document and hitting the send button.

If the appraisal was done by an AMC that is not on our approved list, our underwriting team will do a desktop review of the appraisal. If the appraisal comps used vary too much from our guidelines or other issues are found then we will insist on another BPO or Appraisal take place.

A Hard Money Lender will likely make their money in points and fees. If the loan profit is dependent on lender spread then there will be prepayment penalties if you decide to pay it off early.

Furthermore there is an excellent chance that your loan is no longer being actually held by that HML. There is a whole industry of note buyers who purchase mortgages. The capital tied up in your original loan will likely be reinvested back into the next loan and then the next... That way we HMLs can lend out Billions while possibly only having hundreds of Millions in capital. If you pay off the note buyer then that's great. Hopefully said note buyer will be cashed up and hungry to buy more of our notes...

Best of luck.

1. If rehab withdraws are paid in arrears, as is common, then besides having money for a down-payment, closing costs and loan carrying costs you ALSO need to bring in some rehab money at least until the first draw. And if you are busy wondering where you are going to get this initial rehab milestone money, strongly consider if you are ready to rehab. The possibility of rehab and exit strategy cost over-runs and, just for instance, incompetent/unscrupulous General Contractors need to be considered when you are planning your numbers. Like a card player going into a game without sufficient reserves for a bad or misplayed hand, you need to bring money into this game or risk losing your shirt. So Save Up!

2. 1 point = 1% of the total loan. Hard Money is convenient but not cheap money. If they don't charge points then the Hard Money Lender will get paid in other ways - usually in loan fees of various descriptions and and interest rates. If you are not paying, in one way or the other, at least (very approximately) $7K to the lender, you need to make very sure that said HML is legit.

3. It is not unusual for up-front fees to be asked. In the Bigger Pockets community many people (though by no means all of us) take this as a red flag. As for the rest of the question, $1,500 in total for closing costs is ridiculously cheap. Combined with no points you either being charged sky high interest rates worthy of a NASA rocket launch or there is a huge red flag here that needs to be considered.

Q. a) Hard Money Lenders- Do we get pre-approved for a max loan amount they will offer us prior to finding a house and placing an offer? Or do we need to find a house first, then get approval for the funds?

    - Usually Hard Money Lenders will want you to have a property under contract or close to it. Of course it is worthwhile knowing what a HML loan criteria is so that you can look for a property well within their lending comfort zone. A HML can usually tell you their minimum loan sizes, and what % of purchase/LTV/ARV plus rehab they can lend you on which type of property. 

Q. a.1) Do I understand this loan type correctly- typically hard money loans are used for fix/flip properties or double closes, correct? 

- Yes. (There are also long term HMLs for refinancing and purchase/hold options).

Q. And typically we need to come to the table with some $ of our own, correct? 

- Yes you having skin in the game is what most HMLs want to see.

Q. What if we don't have 10% of the cost of the home to put down? Does this mean we can't move forward with this type of transaction until we do? 

- 10%? Usually this is if the LTV is much higher than purchase, otherwise it can be more like like 25% down. And what about loan costs? If the HML is not charging very approximately$7K in total loan costs if not more, that's a red flag.

- If you have a motivated seller or a kind relative or anyone willing to fund the loan for a second position, then some HMLs can accommodate a second position. 

- There are also numerous threads, guides and webinars here on BP with subjects along the lines of "No Money Down" and "Using other people's money".

Q. And in this case, we'd have to complete a few assignments to save up some $ to put down on this type of transaction.

- I'm just a down-to-earth loan originator. I leave the creative "Make lots of money with no skin in the game" to some of the (self proclaimed?) gurus around here. However....

- I deal with lots of investors/loan applicants every day. I also deal with our borrowers and keep track of many of them even if its just when they contact me for their next Rehab draw. I can tell you that it is always wise to have extra money over and above what you think you will need. Money for the down-payment, for the loan closing costs, for carrying the loan until your exit strategy, for the first milestone of Rehab and most of all for contingencies... For when your rehab costs more than expected, for when your GC doesn't do right by you, for when your exit strategy - be it sell or rent takes longer than expected or is less lucrative than expected. I have seen some people coming into this game with few reserves and regretting it. Save up some money.

Consider taking that 20% down and instead find a single property that also has great cashflow. Eventually, once you own a nice chunk of the equity, you can pull out said equity to pay for these smaller deals if you still want.

Of course if that first Duplex you mentioned has sufficient equity in it, you can always pull some equity out of that.

My inbox is awash with offers to borrow on smaller properties. There is a reason we have minimum loan sizes. For us and many other HMLs that loan size starts at $75K. Some have higher minimums, very few have less. If the total loan costs are not somewhere around 7K+, then lender overheads are quite possibly not being covered and you have to wonder if it is legit.

Instead of being mesmerized by low worth properties with an apparently nice cash flow, consider instead looking from the get-go for investment properties that HMLs will be happy to lend on? That means an LTV of $100K+. Of course $200K would be even better. You can then keep churning the equity.

Best wishes in your endeavors.

If you can pull equity out of an existing property for use in your land subdivision plans via conventional funding then that's great. If however conventional funding is not available or desirable for you, then a HML can step in to pull that equity.

If however you cannot pull equity out of your existing properties and your conventional lenders won't lend on land, then indeed you may have to search for that rare HML who will lend on land.

Best of luck in your endeavors.

Since you have a fairly large portfolio, I presume a portfolio with standing buildings, perhaps the best way to approach it is to do a cash out refi on one of your current properties to free up equity that you can spend on, for instance, your "mini development".

HMLs willing to lend on land only are not that common. Also if the amounts needed are small then most HMLs won't lend less than $75K.

But pulling equity from an existing property might make a HML easier to find - if the numbers make sense of course.