All Forum Posts by: Aaron Pfeffer

Now that is something we can both agree on @Jay Hinrichs -- @Michael Hoyt should have been more specific and forthcoming right out the gate that he is a rep at a very large HML institution. Though they are backed by Wedgewood, so they may have convinced themselves they are like private money, but we know better. And he's not my buddy, never met they guy, so again, maybe stop being so careless with your words every time you have an urge to write something. Which is always.

And as far as Scotsman Guide is concerned, once more you just had add a little extra Hinrichs flavor to your post about them by insinuating that most of what is in there is wholesale lenders for retail.

Uh huh, but there are very specific sections for Residential and Commercial HMLs so there should be no confusion.  And if you can't see why a comment like "saving a newbie from sending $500 to Jamaica" is blatantly condescending and borderline bigoted, well you just keep on posting that holier than thou rhetoric of yours...and your legions on here will just keep gobbling it all up.

Funny you found your way to Civic @Stephen Turner

...which is exactly where @Michael Hoyt works if you notice his email handle, and he was the first guy to respond to your post.  And then @Jay Hinrichs cut him off at the knees in that holier than thou, passive aggressive manner he loves to interject into every thread on this site. To anyone reading this who ever thinks about HML as a source of financing for your projects, get your hands on a Scotsman Guide or go to their website and search HMLs in your area. HMLs exist for a reason, the good ones are excellent sources of capital for investors who understand leverage, and no, not everyone is out to scam you.

Unless you have a long standing relationship with this person, I would definitely not structure it like a "partnership" with equal splitting of everything.  Instead, consider drawing up the whole scenario with how you think it will go and then one of you becomes the developer and the other becomes a lender.  Meaning...

Let's say it's $100,000 to purchase and $25,000 to rehab, selling for $185,000.  If this were an all cash scenario, you each bring $62,500 to the deal, but one of you is the lead developer and title holder, and the other puts a lien on the property. Each of you gets a guaranteed pref on the $62,500 you each put in, and then you split profits 50/50.  That way only one of you is making all the developer decisions so there will never be a fight. Whoever becomes the developer should also be prepared to bring more money to the table to complete the job if the costs balloon (rehab, holding costs if you are a getting hard money in first position, etc).  But keep in mind that bringing that extra money also comes with the pref, so it is not for nothing.  You can also have an agreement that the realtor in the equation will take a discounted listing fee, but they are at least making something as well no matter what it sells for.  The point I am trying to make is that you can get creative and slice up the profit sharing any number of ways -- just as long as you don't do it as equal partners expecting to make equal decisions and still come out of this as friends.

Both @Tommy F. and @Nghi Le make excellent points about what options are available.  To summarize even further @Abe Macias, your original post said the bank in question will supply 75% value of the project.  The project should mean land + hard costs + (potentially) soft costs.  So you've already purchased the land, and though you alluded to the fact that you used a 25% down payment at purchase, you didn't quite specify if that was the case.  If you purchased All Cash, then a construction lender (commercial or hard money) should easily lend you 100% of the construction money if the purchase of the land equates to at least 25% of the project cost.  But if you only put down 25% to purchase the land, then yes, any construction lender (commercial or hard money) is going to want you in another 25% of whatever the cost is to build.  A developer such as yourself should be into a deal at least 25% of THE TOTAL PROJECT COST one way or another, even if your final value will be gargantuan compared to what you paid for the land or what you can build the project for. It's a reasonable request, otherwise the loan you seek (more than) 75% total project cost could be considered a joint venture scenario.  Hard Money lenders may give you a high amount of leverage for the purchase price + construction money on a REHAB project, but full construction projects demand a significant amount of skin in the game from the borrower all around.

Thank you @Jennifer Petrillo and yes, you can definitely just buy the property with purchase money funds from an HML. Many will lend to a seasoned flipper at 70-80% LTC (Loan to Cost) with no hold back for rehab. Many appraise value on ARV (After Repair Value), so if they lend to you at 70-80% of purchase with the expectation that you will be improving the property immediately after closing, then that 70-80% becomes 65% net LTV or less based on an agreed upon ARV. Full construction loans are different, as scraping a structure entirely will bring us back to land value pretty quickly, so then an HML or Private Money Lender will absolutely demand control of the construction funds.

There's another way to look at this @Zach Falbo

Someday the lowest possible interest rate on the house might be very valuable.  Meaning, if rates hover around 10% fifteen years from now and you want to sell, you could become the bank yourself, carrying back the paper, or even wrapping the mortgage and living nicely off the spread.  As others pointed out, yes the simple math is clear in terms of amortizing the points over how long you will own compared to monthly payment and yadda yadda...but you are a real estate investor.  And if you intend to remain a real estate investor for decades and want the answer that gives you the most powerful options, take the lowest interest rate today.

I'm curious what you mean by "Investor Friendly" @Account Closed and why specific to Oceanside/Carlsbad area, as opposed to say, Southern California itself?  I just closed on a private money loan for an Oceanside condo a few weeks ago and used First American.  In fact, from a private lending standpoint, FATCO has been extremely amenable with 125% ATLA policies for my private beneficiaries (while many others have not).  Plus, First American essentially underwrites a number of other smaller title firms so it's better just to go the source and their fees are just as good if not better than most.  Stewart Title is good, as is WFG and Lawyers Title.

Always open for a discussion @Nick M.

If you Direct Message me your number I will absolutely give you a call.

It never ceases to amaze how many investors disparage the use of HMLs. There's this never ending stigma that all are predatory scumbags who can't wait to steal your property after you slip up. Uh, no. Nor should you ever use ALL of your own cash if you don't have to. Especially for a flip. I promise you there are a number of HMLs who will fund you 70-80% of your purchase price on a one year note with no prepayment penalty for a reasonable interest rate and fees, and you can have them include 100% of the rehab money or not depending on how you operate with your flips. That part is up to you...but leverage is everything. And you know what else? You can just as easily get a non-recourse hard money loan for maybe another 1-2 percentage points on the rate if you're really concerned about a personal guaranty of the note. When it comes to flippers, there are a number, a ton, a plethora! of national and local HMLs in every state in this beautiful country of ours who want to fund your project with the intent of seeing you succeed, making you a repeat customer, and doing it again for your on your next project. These loans are business purpose bridge loans on non-owner occupied property and everyone involved in the loan process (lender and borrower and escrow/attorney and title company) should be speaking the same language. The language of profit. The borrower makes a profit, and so does the lender. Rinse, repeat. So yes, use an HML @Nick M. What really stands out about your post is that you are from North Carolina and purchasing a flip in New Jersey, and I hope you are comfortable and qualified to do an out of state flip, because that can be daunting. And honestly, the numbers you are throwing out are meh. You're saying the rehab cost is half the cost to buy the house. That's a bad ratio right there already. Then purchase costs, holding costs, and sales costs to make $10-20K in taxable profit, and that's if your rehab doesn't balloon to $50,000 like they often do. If you have the cash to do this yourself, you'd be better off lending out your $100K as a private lender yourself at a max of 60% LTV for 10% interest. That's $10K annualized right there and you'd sleep at night and have all that other free time on your ends not doing a flip in South Jersey. But that's just one person's opinion...

The Code Solution is solid