Hard Money Question

Financing, Hard Money Lenders, Private Money
1

Ok. So far, my understanding of HML’s is that they will lend 60-70% LTV and the loans are NOT long term and usually have higher interest rates from 12-19%.

Now my questions are:

  1. On average, how long will the loan be for?
  2. Is the interest added on monthly?
  3. How do you get out of the loan in short period of time?
  4. When they say refinance to get out of HML, what do they mean?
2

You could use a HML for a fix and flip. If you used the money for a short period of time, the overall interest you pay may not be that bad even though the rate is significantly higher than conventional lending. Once you’re done with the rehab, then you sell and get out of the HML.
To re-fi to get out of the HML would mean to get some type of conventional lending that would be at a more normal rate (say 6% vs 15% for HML).

3

Is the interest added on monthly? Because it just wouldn’t seem right if it was annually considering the loans are short term. And when you re-fi to get out of HML, how much should the conventional loan be for? More than the HML, or just enough to pay it off?

4

Most HML’s payments are interest only.

5

As a flipper here in Orlando, the process of Hard Money Loans was very confusing at first.
I made a site to help others on it, you might want to take a look. I hope you find it helpful. It is in my signature below

6

  1. Most HML are for 6 to 12 months, they usually require the borrower to put down 5%-10% of the amount borrowed or the purchase price. They make their money off of the monthly interest as well as the ‘points’ (an upfront fee for the use of the money)

  2. take the total amount borrowed multiply it by the interest rate (12 to 18 %) and then divide that amount by twelve to get the monthly payment

  3. Sell the property or refinance the loan with another lender

  4. get another lender to give you a loan that pays off the HML. The purpose of the refi being to get a normal interest rate (6 - 9% for investors)

7

ok thanks everyone. All the replies really helped a lot. The next questions I have are:

  1. What is the difference between HML vs. Private?
  2. How can you become HML?
  3. How can you become Private Lender?
8
  1. HML is from a professional lender that will look very hard at your deal before lending on it. They will charge large upfront fees of about 5%, will want their money back within about 6 to 12 months, and will want you to make monthly payments.

A private lender will be a lot easier to work with and wont want nearly as much. Basically its just someone that you know that is looking to earn a decent return on their money and wants to benefit from your expertise in real estate without having to deal with all of the issues like managing a project or dealing with tenants.

  1. Become a HML by having a learning how the capital markets and real estate works.

  2. Become a private lender by doing the same and then finding folks that have good deals that you would like to invest in.

For both cases you need to know how much you available to use and what types of properties you want to risk it on. Dont rush into it without taking the time to learn how this business works.