Hard Money for Rehabbing

Financing, Hard Money Lenders, Private Money
1

Hello all, I have recently taken a high interest in REI. Still learing by reading, reading and more reading. Most of my questions I have been able to research and answer on my own but I am wondering about hard money financing. My credit is ~620, I have around $40,000 cash for investment, but if I am wondering how these lenders look at experience? I have never rehabbed a house before but worked in the construction trades for 11 years and owned an older home which I did fix up and sell 10 years later. Would a lender value this as experience? I am looking at homes around the $100k price range for doing this. Any feedback would be welcomed and appreciated.

-Bill

2

Hard money lenders usually want high interest rates, want points going in, points going out, and monthly payments. They are sometimes easier to work with than some banks but you pay a high price for the short term use of their money. You should start developing some local banking relationships, putting 40K in a bank account does wonders for bankers willingness to work with you. Ask your new bank executive friend to authorise a line of credit for at least 20K. Call to request your credit limits be increased to the maximum on ALL of your credit cards on the SAME day (They get nervous when they see a bunch of inquiries , and they will all check your credit , these"inquiries" don’t show up in a matter of hours but by the next day they show up on your credit report , then your increase offers dry up) In my opinion hard money fees and interest rates consume too much of the potential profit. If I were you I would try to partner with someone with money but no time or experience on the first one or two projects. If you have
a fair written agreement, both partners profit and have realistic expectations, it will be to both of your advantage and really wouldn’t you rather help a friend or associate
make money than a shark hard money lender? Good Luck

3

Hello, PLS711 where did you get your education from on HML? If you think that private money lenders are sharks, then I hope you never need one. HML are people with money who lend to investors that cannot get traditional funding, usually because of credit issues. Yes, they have higher rates and yes, they have more points but also who is taking most of the risk on the project. HML also ask for cash available, equity in other properties (or your personal property) or collateral to secure the loan. Now, does that make them bad or a shark because they want a little protection from the high risk that they take. Also, you need to be a SERIOUS investor.

Warped, my advice to you is that you have a good credit score. A traditional lender is your best bet. Use HML only as a last resort.

4

Cmacone, do you do HML’s in Utah? I have crappy credit due to a business failure, but lots of experience in construction. I want to do some rehabbing.

5

Hello Chris, my experience with HML’s is where I formed my opinion and as you pointed out to Warped, they are only to be used as a last resort and only if you have credit issues preventing you from using traditional lenders. This is why I suggested traditional, self funding and partnering with an associate to share the risk and the reward. Please pardon me for having stepped on your toes by referring to HML’s as sharks, but come on If The Shoe Fits… Wear It.

Warped, Chris pointed out to you an additional downside of HML use, some require that you give them your interest in other property you own. You would do well to heed his good advice and use them as a last resort. You have good credit so you do not have to swim in shark infested waters. Again I say develop good banking relationships and swim with a buddy. Good Luck

6

Well after reading the replies I decided to call the broker that did my current home loan, lucky me. He said I will have no problems getting financing based on the last loan we did. I guess it pays to ask even if it might not seem possible. Thanks all

-Bill

7

Hello Bill, Good Luck on your endevors!

8

Hard Money Loans vs. Conventional Loans

There are a lot of misconceptions regarding Hard Money Loans and Hard Money Lenders (HMLs). Most of the confusion surrounds the differences between conventional mortgages and HMLs. I wanted to take a moment and try to answer many of the general Frequently Asked Questions as well as to compare a HML to a Conventional non-owner occupied investor loan.
Frequently Asked HML Questions

How does the program work?
HMLs provide Real Estate Investors access to asset based capital. We can fund quickly, typically within 72 hours of receiving the final docs from the Title Company. Hard Money is available for adequately collateralized loans on single-family residential houses and other Real Property including commercial projects.

What is the interest rate?
The interest rate depends upon the Lender. The rate will range from 14% interest only to 18% interest only annual interest rate payable monthly in most cases.

What Loan-to-Value are HMLs looking for?
Typically a loan does not exceed 70% of the after-repaired-value (ARV).

How long is the loan for?
HMLs typically write the notes from 6 months to 12 months depending on the Lender and your needs.

What are the costs?
Costs vary depending on which Lender you use. All loans will require at-least a Title Policy, Vacant Dwelling Insurance, Inspection, “As-Is” Appraisal & Flood Certificate. Most require origination points.

Can I get repair money?
Yes. HMLs can fund repairs. HMLs require a “Draw Request” form to be filled out to identify the completed repairs to the property, Copies of the invoices from the vendors. Then, we will pay you once the work is inspected-HMLs do not pay in advance for any work.

Does my credit matter?
Yes and no. For the most part, HMLs look at the value of the property after it is repaired, how much you are paying for it, and how much the repairs will cost to determine how much we will lend. In some cases, with your consent some HMLs may need to checkout your credit history.

How do you decide how much to loan?
Typical loans range from $25,000 to $1,000,000: All loans are considered on a case-by-case basis. Each HML has their own criteria.

Do HMLs need an appraisal?
Yes, HMLs require “as-is” and “as-repaired appraisals”.

Do HMLs require inspections?
Yes, HMLs require inspections including the interior before funding and before a repair draw to ensure the work is completed in a satisfactory manner.

Do I need to put any money down?
In most cases, Yes. Most HMLs want to ensure that you have enough resources to finish the repairs and cover the costs of the loan plus any surprises. Therefore most HMLs require that origination/discount points and other required items be paid at or before closing. We are confident that if you cannot afford to close you typically cannot afford to take out this type of loan.

How much will my payments be?
To figure your monthly payment simply, multiply the rate by the loan amount and divide that number by 12.

Will HMLs finance commercial properties?
Yes, many HMLs will on a case-by-case basis finance commercial properties and then only if the loan is secured by improved real property such as the building and land.

Will HMLs finance apartment buildings?
Yes, many HMLs finance apartment buildings however understand that it will take us longer to get our due diligence done.

Do HMLs allow interest to be deferred to the end of the loan?
Some HMLs do. Most however have interest payable monthly. Again, we are confident that if you cannot afford to make monthly interest payments you typically cannot afford to take out this type of loan.

How do HMLs compare to a traditional non-owner occupied investor loan?
You might be surprised how competitive HMLs really are.

Final Analysis

In many cases an HML can be obtained faster and easier then a conventional loan and while in almost all cases the amount you can borrow from a HML exceeds the amount you can qualify for from a convention lender the cost difference is minimal. HMLs are not for everyone and every HML has a different program and qualification process. However if you need fast access to capital for REI then a HML may be your new best friend.
Good luck and may all your investments be profitable!