All Forum Posts by: Ryan Blake

@Sabian Ripplinger I agree with what @Noah Wright is saying. Call up a couple companies. If they don't have time to get on the phone and speak with you to explain how they work, then they will be even more difficult to get ahold of once they already have your business. Below are some key questions I would suggest asking.

Are you a direct lender?

This will be a gateway question. If the answer is no, that means they are a broker of some type. Typically this means they will take longer to close, may not have all the information for the companies they work with, and most hard money brokers get their money by taking an existing product and adding extra points to pay their fee.

What is your investor success rate?

Another way to ask this is what is your default rate. This is important to know. Many don’t track this statistic as closely as they should which is why many lenders go under. I think it is probably the most important stat. You want to make sure they are at or below 5% to make sure they are able to stay solvent. You don’t want your lender to go out of business while still holding your construction escrow funds.

Can you provide me with the contact info of some recent borrowers?

Any good HML will be happy to share the contact info of borrowers so you can see how easy the process was and how well they treated the investor.

Can you share a recent closing document or HUD?

This will show you more evidence of the fees they really charge. Not all lenders will share this as they will need to get approval from the borrower before providing. If not, at least make sure that you get a term sheet. This should put in writing what the fees will be.

What is your maximum LTC and LTV?

LTC is sometimes referred to initial funding. This is the percentage of costs (purchase and rehab) covered by the loan. A general range tends to be 85% to 100% covered. LTV is normally expressed as a percentage and that percentage is of the ARV. A general range tends to be 65% to 75% of value. Lenders will lend the lower of the amount between LTC and LTV.

Do you require an appraisal and survey?

Most HMLs will require these. I am wary of the ones that don’t require an appraisal. Lenders that don’t require an appraisal will perform a desktop appraisal but will typically have a very conservative view on the value of the property to protect the company’s investment. This means you will be coming out of pocket more. Survey is a toss-up on whether or not it will be required. Know that every long term lender will require a survey and if something comes up on it when you are trying to sell or refi, you could get stuck in hard money without an easy or quick way to get out.

Is there a pre-payment penalty?

Some will require you to pay the interest through the term or another length no matter how long you hold the loan. Just make sure that you include this requirement in your costs.

What is your draw fee & benchmarks for the repairs portion of the borrowed money?

Know what your fees will be to take out the repair money borrowed. Draws are almost always held back until you reach certain points in the project or that work is completed. They will also charge you to have an inspection by a 3rd party or to use an app to make sure the work is done. I have seen this range from as low as $100 up to $300.

Do I need to pay anything before sitting at the closing table?

There have been numerous people on BP talking about how they paid application fees but they could never get their loans closed on any deal brought to the company. This is a practice by some less than reputable companies. One I saw charged $500 upfront to be pre-approved and would never actually fund any loans. Just beware. Most reputable HMLs will not charge anything until you are sitting at the closing table and all fees will be listed on the HUD-1 closing document.

And of course, what are the points, interest, and attorney/document/admin fees for the loan?

This will vary based on region but in general 2 – 5 points, 9% - 16% APR (meaning this is the annual rate so divide it by 12 to get the monthly interest amount), and documents fees can be from $600 – $1,900. The document fees are what will vary wildly from company to company. Just know them going in so that you can properly budget. You will also want to find out if payments are interest only or if some principal is built in. Most hard money will be interest only payments on the full approved balance of the loan whether or not if you have pull the draw funds for repairs.

If you have any other questions, post them in the same thread below so that we can all learn from the answers.

@Brent Campbell I suggest Martin Garcia and his team at Select Title in Fort Worth. They have done A LOT of subject to existing financing deals. They are very familiar with the rules and regulations and how to get it done.

@Christopher Lynch It has already been said but the 100% funding for 50% profits is likely your best option. Even in the long run. It will allow you to grow with little risk and no capital. Hard money can help but I don't think it is right if you truly have this option (this is coming from a hard money lender). You really have a great position here.

If your private money runs out or runs tight, then you can explore other funding options like hard money. Keep that as a backstop when the primary funds run out so that you don't have to pass up on a great deal that comes your way.

LLC structuring is something that you really should talk with a tax professional about. It will depend on where you are doing your deals and what the liability is that follows you after a sale. Most new construction deals require you to give up to a 10-year warranty on some items while most fix and flips come with very little extended liability after the sale excluding gross negligence which is not stopped by an LLC in any case. I am not a tax or legal professional so please take this to someone much more qualified.

@Matt Powers I will second what @Jimmy Lieu said and Columbus and Cincinnati are great for rentals when considering price vs rents. Same with the northern part of AL (Birmingham, Montgomery and Huntsville). Just know that if you are moving somewhere to chase the hot market, it will only stay hot for so long. Dallas was the hot market post the financial collapse of 2008. Then a lot of people moved on to Memphis. Just know you could end up chasing place to place which may work for you. Just run the numbers and make sure things make sense.

@Tom Nagy So sorry this happened to you. It is unfortunately a very risky thing to invest with individuals. They are not secured investments and you have very little protection outside of out right fraud laws. I wish you luck but please let this be a warning to ALL investors. No matter who it is, RAD or another group, please do a lot of research and make sure you are working with someone who has a track record and is able to connect you with references. If the deal sounds too good to be true, it probably is.

@India H. Congratulations on taking that big step to getting your first deal. I have found there are some very important questions to ask any lender but these are geared a little more for hard money lenders.

Are you a direct lender?

This will be a gateway question. If the answer is no, that means they are a broker of some type. Typically this means they will take longer to close, may not have all the information for the companies they work with, and most hard money brokers get their money by taking an existing product and adding extra points to pay their fee.

What is your investor success rate?

Another way to ask this is what is your default rate. This is important to know. Many don’t track this statistic as closely as they should which is why many lenders go under. I think it is probably the most important stat. You want to make sure they are at or below 5% to make sure they are able to stay solvent. You don’t want your lender to go out of business while still holding your construction escrow funds.

Can you provide me with the contact info of some recent borrowers?

Any good HML will be happy to share the contact info of borrowers so you can see how easy the process was and how well they treated the investor.

Can you share a recent closing document or HUD?

This will show you more evidence of the fees they really charge. Not all lenders will share this as they will need to get approval from the borrower before providing. If not, at least make sure that you get a term sheet. This should put in writing what the fees will be.

What is your maximum LTC and LTV?

LTC is sometimes referred to initial funding. This is the percentage of costs (purchase and rehab) covered by the loan. A general range tends to be 85% to 100% covered. LTV is normally expressed as a percentage and that percentage is of the ARV. A general range tends to be 65% to 75% of value. Lenders will lend the lower of the amount between LTC and LTV.

Do you require an appraisal and survey?

Most HMLs will require these. I am wary of the ones that don’t require an appraisal. Lenders that don’t require an appraisal will perform a desktop appraisal but will typically have a very conservative view on the value of the property to protect the company’s investment. This means you will be coming out of pocket more. Survey is a toss-up on whether or not it will be required. Know that every long term lender will require a survey and if something comes up on it when you are trying to sell or refi, you could get stuck in hard money without an easy or quick way to get out.

Is there a pre-payment penalty?

Some will require you to pay the interest through the term or another length no matter how long you hold the loan. Just make sure that you include this requirement in your costs.

What is your draw fee & benchmarks for the repairs portion of the borrowed money?

Know what your fees will be to take out the repair money borrowed. Draws are almost always held back until you reach certain points in the project or that work is completed. They will also charge you to have an inspection by a 3rd party or to use an app to make sure the work is done. I have seen this range from as low as $100 up to $300.

Do I need to pay anything before sitting at the closing table?

There have been numerous people on BP talking about how they paid application fees but they could never get their loans closed on any deal brought to the company. This is a practice by some less than reputable companies. One I saw charged $500 upfront to be pre-approved and would never actually fund any loans. Just beware. Most reputable HMLs will not charge anything until you are sitting at the closing table and all fees will be listed on the HUD-1 closing document.

And of course, what are the points, interest, and attorney/document/admin fees for the loan?

This will vary based on region but in general 2 – 5 points, 9% - 16% APR (meaning this is the annual rate so divide it by 12 to get the monthly interest amount), and documents fees can be from $600 – $1,900. The document fees are what will vary wildly from company to company. Just know them going in so that you can properly budget. You will also want to find out if payments are interest only or if some principal is built in. Most hard money will be interest only payments on the full approved balance of the loan whether or not if you have pull the draw funds for repairs.

If you have any other questions, post them in the same thread below so that we can all learn from the answers.

@Chris Elliott this is just plain not true. I am a lender in the area and we require it on all properties. I know of at least 100 builder's risk policies that have been written in Dallas in the last 2 months.

@Chris Elliott you use the photo button on the bottom of the post section. (see the red circle below)

@Drew Herzog I wouldn't say an airport is extremely important. I only mentioned it for when you went to visit the property. Logan, UT is only about an hour outside of Salt Lake and it is mostly city from Salt Lake all the way up to Logan. I think that would be a much better market than Cisco. A friend of mine owns a brewery in Cisco and they have issues with finding employees and there just isn't much out there outside of ranch land. I just worry that you would struggle with finding and maintaining occupancy.

@Greg Scott Thanks for supporting Longhorn. I have been with them for 6 years and have had a great time working for them.

So I am not using this to build my net worth per se. I have a few other rentals already and have been consistently earning well between all my investments, my job and my wife's job. This is more setting up for tax strategies, which is the advice I was given, and for future returns. I have no desire to quit or shift my focus any time soon but want to start preparing better for post-active working days. I don't think I will ever fully retire but I plan to be doing less active work in the future, i.e. not focusing on writing new loans and not flipping.

I am lucky that I can easily handle a down turn and be just fine if things soften even for an extended time but I still hope that doesn't happen. Flipping isn't too worrisome for me because I know in times like these I just need to make sure my quality is there and that my pricing is a little more aggressive to keep the project moving.