Currently a general contractor doing a lot of Freddie Mac work and looking to get into rehabbing and flipping properties for myself. Having access to contractors will help me to get the work done quickly and at a low cost. All of the money for the rehabs will come out of my pocket. Will HMLs do 100% financing based on this? If not how much would I need to put down myself? Any help would be appreciated.
No HML will do 100% funding unless you can really show you bought WELL below the true FMV (not ARV).
I have done similar lending in the past but I restructured it so the investor put 25% down and then I paid for some of the rehab.
vincent,
please disregard the response I sent you to your message…There is no way any of the HML’s I associate with in Florida would do anything close to what you are looking for…Generally they want up %45-%50 of your own money in the deal…They dont care what you pay,they dont lend on ARV…
Ok, is the rehab being paid for by the investor the norm?
I guess that would have been a better question for me to start with. If that is the case then I can see the HML requiring more money from me. Is 45-50% on the high side or do you think I can find someone willing to do around 25% if I can show past real estate investing experience as well as rehab experience. I can come to the table with my own money but obviously I would like to keep that to a minimum so I have reserves and also the ability to make a move on other opportunities.
I’m not a young hotshot trying to get rich quick (nothing wrong with that though)… I’m looking for solid HML investors that I can build relationships with and do a lot of business with hopefully. Just need to get the basics down and start from there. Thanks for the help guys.
Why necessarily limit yourself to HML? Try private money or a small bank. You might find the money you’re searching for.
Some people use HML, put in some of their own funds, and then re-fi out of HM once the job is complete. Much harder to get the rehab funds up front, but possible.
Your past REI experience could go a long way to getting what you want from a bank or private lender.
Thanks Justin. I’m going to start becoming active in local REI Groups, maybe that would be a good way to find private lenders. What is the main difference between a HML and Private Lenders? Fees and rates?
The difference between a private lender and a HML depends alot…It depends what amount of experience the private lender has with the process…A well versed HML/or private lender wants more skin in the game to insure the deal…If you find someone that accepts only %25 skin in the game,especially in a depreciating market such as Florida ,you are in a dangerous area…All the market has to do is pullback %15 plus legal fees,some rehab,homeowners insurance,property taxes,water,rubbish removal and the lender is at a loss…Thats why an experienced HML wants you to have %45-%50 in the deal…You walk,you lose not the lender…A private newbie lender will accept less favorable terms because he/she is mesmerized by some BS rate not understanding that they will never achieve the return on their money because its very risky and not in their favor…Yes…Its better for you to find someone who is not experienced with the lending process…Anyone with a half a brain and experience will require more skin in the game and higher rates and points…Irregardless of your experience and I find the more experienced RE investors are the people who give me more problems…This isnt always the case but trust begins with the investor putting his own money into the deal…I work with a handful of investors and do very well and so do they…But I never get complacent and let my LTV be compromised…My capitals preservation is paramount…
Another thing many RE investors do not comprehend when soliciting a private or HML is they have to firesell the property if a default occurs…So they dont base their loan on retail numbers…They look at comps and chop down the numbers a bit to account for depreciation in the market,fireselling in case of a default…A good lender always makes a loan like it isnt getting paid back at all…
To add to my last post…
What amazes me is how RE investors and people in general still expect to get ridiculously high LTV loans after what has happened in the RE and financial markets…These high LTV loans are the reason for the collapse of the RE market…Take a look at a place like Puerto Vallarta Mexico…I own a few units in a place called Paradise Village in Nuevo Vallarata…I bought pre-construction,no mortgage etc…Own them free and clear…I love the place so much that I got in contact with my RE broker friend down there thinking I could score some more on the cheap maybe in foreclosure…No chance…zero foreclosures…You know why?..Everyone pretty much pays all cash ,no mortgages…No ridiculously high LTV loans ,no one to screw but themselves…So what do you get?..A zero foreclosure rate…
In what other business can you get into using someone else’s money and none of your own…NONE…Fact is that people dont pay back…And you have to lend knowing this…A general conversation between hard money lenders is basically speaking about how this industry is now a loan to own industry…Thats why smart lenders want ALOT of skin in the game…They know full well what the intentions are of %90 of the borrowers are…Thats why they ask for prepaid points and interest,personal guarantees,cross collateral,low LTV loans,skin in the game…I tell people all the time to consider when asking for some idiotic LTV loan to ask themselves this…Would you lend your hard earned money on the loan?..