Hello to everyone in the forum. My question is about hard money loan programs. I will like if the hard money lenders or loan specialists in the forum can help me out. Are there hard money loan programs that allow the investor to finance closing costs (loan origination fees, title insurance, hazard insurance, appraisal fees,etc) and down payment costs in order that the investor does not have to bring any cash to closing to secure the loan?
If these hard money loan programs exist, what are the terms for these loans?
Investment Loans, thanks for the information. I will like to ask you some questions about the terms of hard money loans that require the investor to bring no money out of pocket to the closing table.
The 6 -7 points and normal loan fees (appraisal fee, inspection fee, title insurance and hazard insurance, underwriter fees) would be rolled into the monthly payment. The investor would not have to bring the equivalent of the 6-7 points and normal loan fees to the closing table. Allowing the the investor to obtain the hard money without bringing any money to the closing table.
If the investor is allowed to roll in the 6-7 points and normal loan fees and is obligated to carry the note for a period of 6 months, the investor will have to pay a very high monthly note.
In your experience, do you believe it is detrimental for an investor to choose a hard money loan that would allow him to pay no money out of his pocket?
Is it more appropriate for the investor to pay the loan orignation fees and normal loan cost at closing to avoid such stringent loan terms and the higher monthly cost to pay on the note?
Are you familiar with hard money lenders lenders that offer a shorter mandatory term (4 months) on these type of hard money loans that will allow the investor to pay no money out of his pocket?
There are indeed hard money lenders that will allow you to roll closing costs into the loan. There are those that will also allow you not to pay any of your own money for the term of the loan.
Of course, the no payment plan will bring in extra fees on the end and a higher rate. Why? Because the lender is taking a greater risk.
There is, after-all, a reason it is called Hard Money.
The reason hard money lenders exist is because it does work for all involved. If it didn’t work for borrowers, the pool of clients and loans would dry up for HMLs.
I have dealt with HML’s that allow absolutely everything to be rolled into the loan ;D
The problem as stated previously is that you end up paying higher rates on loan.
One company in particular allowed me to come to the table w/ $$0.00 cash out of
pocket.
T
hey did however give me a 60 day prepay penalty on a 180 day loan - charged @ 1.5%
per month in interest, and 6 points for origination on the loan. YES…very expensive but
I had very low cash exposure & made up for the charges when I sold.
Another good thing is that I did not have to make any payments for the life of loan.
They got all their $$ when I sold - just like me.
Hello wealthrx
that does sound high but a great way to get a property with no money down. could you give me the company name? That would be great.
Marc
This particular lender is in Illinois only right now but has plans to possibly
expand into other markets maybe next year sometime. There are other lenders
that will allow the costs to be rolled into the loan but you will have to have a solid
proven track record with them and the numbers Still have to be within their guidelines.
Any suggestions for a guy trying to get into Real Estate investing fresh off the street? I been reading a few of your posts and you seem very knowledgeable. I been told by a few different folks to join my local REI Club. If I were to join a local club, is it truely supportive and informing? It’s not about a bunch of pay 100’s of dollars for these “bootcamps” is it? I just really want to get all the info I can about REI.
Question for you or whoever is listening ;D Say I found a property for sale and did all the research that needed to be done to ensure a legit deal and I put a portfolio together and took it to a hard cash lender with never being in the business, would I be wating my time going that route?
Well this board is a great resource for gaining knowledge and confidence in the Real estate investing
arena, so you have already taken a huge step by just getting involved in the forum.
Funny thing-
When I started investing in 1998 there were No educational resources like the one’s that the
web has created, I actually lived in the same subdivision with Carleton Sheets but had no
Idear who he was or what he did. lol. I do now! I had to do a lot of trail and error and make
a full commitment in r.e. investing. Hard $$ lenders are Mostly collateral based meaning that
they only care about the Numbers not You. You need to locate deals that have huge spreads
in order to be successful in the hard $$ arena. Find a deal where the price & repairs are less
than 60% of the Arv & you will do well. IE: PRICE-40K, FIX-20K, VALUE-100K, PROFIT-40K.
Not impossible but a lot of legwork.
As far as joining a local rei club you should attend meetings at several of them to learn as much
as you can and meet people like yourself that may have the same questions/fears that you do.
Watch, Listen, Read- but take action asap. Every day that goes by you are losing $$$ by not investing.
Good luck.
Thank You Wealth… As soon as I get everything together on the homefront, I’ll be seeking my fortune. Unfortuanetly right now as of this time I am limited to reading on the internet and looking up different sites about REI and whatall.
thanks for the information wealthrx. You stated that you did not thave to pay any money for the life of the loan. Was there a contractual stipulation provided by the hard money lender that the loan must be paid off after a mandatory 3 months by either selling a property or performing a refinance?
Basically I could have paid it off at any time within the 180
day term-but before 60 days there was a 1% penalty fee.
All of the payments and closing costs were rolled into the loan
amount for the 6 month term (if needed). I paid it off in 3/mos
Less interest paid - avoided prepay. Yes you would have to
refi or sell within the 6 month time frame.
Beware of 4 month term offers for hard money. This period doesn’t give time for multiple exit strategies to work when a primary exit plan fails.
Rest assured that if it’s a great property you’re acquiring, your 4 month hard money lender will likely seek to acquire the asset if you need to go past term.
A few hard money lenders have a short period prepayment penalty (someone else will need to tell you why).
Because the yield on these loans is already astronomical when someone pays out very early because of the points charged to let the loan.
If you cannot complete a rehab in 4 months then this business is not for you! A typical rehab should take no more
than 60 days at most, obviously every situation is different but 2 months should be more than enough time.
I have had private money loans with as little as a 60 day repayment period but the properties were cosmetic
upgrades only, IE: Hardwood floors, cabinets, ceramic tile, paint, carpet, counters, fixtures. The work was finished
in a few weeks but gave me extra time for sale. The whole process took me up to the 60 day mark to close with
new buyer. If I had not sold the property within the 60 days, I was prepared to refinance to payoff private loan
then proceed to sale.
Do your due dilligence upfront, then have 3/4 viable exit strategies in place Before you buy the property.
Nearly everyone can complete the construction process in one or two months. The question is the exit from the hard money vehicle. Depending on plans, that could take a little longer.
All I’m saying is that plans fall through multiple exit strategies should be available for conservative investors in a buyers market. This is especially true if the person requesting a hard money loan can’t close on the refinance.
The four month money lenders aren’t usually the type willing to extend their loans. That’s why I prefer those that will stretch out to 6 or 7. Nearly every possibility for clearing out the hard money (multiple exit strategies) can be accomplished in that time period.
To say that someone that can’t get through their entire deal in four months shouldn’t flip or rehab houses is being a bit reckless. As a more conservative investor who has survived the last market cycle and made a pretty good profit, I couldn’t disagree more.
As a general rule, isn’t it true that hard money lenders will only loan 70% of the after-repaired market value? Or is it 70% of the current sales price?
Case in point, I’m looking at a bank owned property listed at $133k, and the listing says it “needs lots of work”. My comps are showing anywhere from $166-209k.
Now, if I go to a HMLender, does that mean they will do an appraisal, or will they do their own comps and loan me 70% of whatever their figure is?
I stand by what I stated earlier that it should not take 4 months to consistently close out your deals.
If your projects are consistently taking 4 + months to close then you’re losing $$$, no way around it!
There many strategies for r.e. investing, but going any longer than 4 months to payoff HML is just not
one of them! You Must be prepared to refinance - at least to payoff the hard money deal if you are approaching
the 90 day mark.
This is the 1 exit strategy that you have the most control over. You cannot truly control what a buyer
may or may not decide to do in regards to the purchase of your home. But you Should be conscience
about Your abilities/qualifications in obtaining refinance on the property - before investing in the project.
In the flipping business speed/efficiency/quality are the keys to maximizing your profit, no matter how long
the term of your initial HML. If you can’t accomplish all 3 of these then your costs will soar and your profit
will be deflated. Smart investing not reckless. Case closed.
The HML will lend up to 70% based on the “After Repaired Value” of the property. This 70% will include your purchase
price Plus the cost to repair, in some cases closing costs can be included as well. They will do their own ARV appraisal
that gives them an estimate of the repairs needed as well as the estimated value once those repairs are fully completed.
Example:
200k - ARV (appraised value after repairs)
140k - 70% of ARV (your new loan amt.)
133k - Purchase price (listed amt)
7k - Repair money (escrowed)
30k - Actual repairs (needed)
23k - Deficiency amount (cash needed to close)
In this case you will only have @ 7k in lender’s escrow to complete repairs. If the property needs “alot of work” then
it may not be a good HML candidate. They will require you to bring in the difference between their loan amount of
140k & the 163k amount (plus costs) that is needed. In this scenerio you are looking at approx. 25k-30k cash out
of your pocket to purchase property.
The key to my success w/ HML is to keep the purchase price and repairs below the 60% ARV mark.