OfflineHello To Everyone In The DG Family:
I have been very busy lately with buying a Hotel in Arlington, TX with Mike Laurita's guidance in structuring the deal, as well as 4 properties in the Tampa, FL area.
I had gotten out of the hard money brokerage business because I just grew very tired of all the politics and bs that comes along with it.
Recently one of my partners in California has talked me back into business and I will tell you about that at the end, but what I wanted to talk about is hard money a bit.
Hard money is expensive and for sfr deals, definitely something that can wipe out any profit before you even get past the closing table.
Lets talk about the realities of hard money. First and foremost, it is really designed for commercial properties. There are hm lenders who will do residential deals but it is not as easy to get as it once was.
Lets look at terms first. Most will not go above 60% ltv. What this means is that on a $100,000.00 property, they will not lend more than $60,000.00. Now if your buying it for $30,000,00, this could work, but not really.
When a hard money lender values the collateral, which is the property your buying, they look at what ius called the quick sale value, which some look at 120 days, some look at 180 days, it all depends.
Lets say the lender you want to work with looks at 120 days. What this means is that the lender will ask the appraiser to provide a 120 quick sale for cash value. This means that in the event you default, they want to know what they can reasonably expect to sell the property for, so they can get back the money they loaned. They then will lend based upon that number.
This ultimately means that for you, the investor, you may end up being offered a loan for alot less than you may need, and if this is the case, you will need to come up with that money.
Alot of hm lenders will not allow seller seconds and if they do, they will limit that, which means you will need to come up again, with money to bring to the closing table.
Some will lend you rehab funds as well, but that is only if you have a track record of doing a successful rehab, and it does not matter that you'll be using licensed contractors, because you will be taking on the role of general contractor and again, they will want to see experience.
There have been many investors who became the general contractor on a property and because of a lack of experience, caused price overruns, additional work done at inflated prices, etc.
Then there is the interest. This can be 12 to 20% interest. Just because a lender says interest only, this does not mean lower payments. What this means is that you will pay the interest only payments while your trying to sell, but once you sell, you will have the principle balance to still pay.
Then there is the broker who tells you yes, yes, yes only to find out that the lender says yes, yes, yes with conditions and often times, those conditions make your deal far out of the profit reach.
The way to go is private money. There are transactional funders who provide private money, and then there are private money lenders/investors who will give you a loan, at better terms and costs than any hard money lender will ever think about allowing.
My partner and I have a relationship with a private money source for residential deals, commercial deals, bulk reo purchases. Interest rate is 9%, minimum loan is $50,000.00 and the ltv is 70%. This is private money and I do mean private money. Drop me a note if you need private money for deals.
My partner and I are waiting for your inquiry and we can get you onto a conference call the next business day.
Happy Investing.
Hope this doesn't sound stupid, but since I have never used any lenders of any type, when a person gets a private money lender, is it only when they have an end buyer? Or do they also use these on lease options for any amount of time.
It is my understanding that this is only for something like a double close, then how do they use it for rehab, do they have the end buyer already?
Your post was interesting, and listening to Nathan on the Edge, I myself would never use hard money lending.
It will be interesting to see more posts.
Thanks for starting this thread.
Sandi
Sorry, I hit the submit twice! Don't know how to delete this one/
Hello:
What your referring to is transactional funding, which is a source of private money and is not a loan.
What our guy is doing is an actual loan. This is private money, meaning that there is no board of directors who take all the time in the world to end up saying no.
This is money that is not hard money, but funds that come from wealthy private individuals, celebrities, entertainers, investment groups, insurance companies, corporations, etc.
Hope this helps you.
Love the info, this is a great thing to see from you! I am interested! I am running through hoops for this HML and they are so disorganized, its reminding me of my last traditional loan that went south. I can not lose this property as I have a $10K earnest money in it! I will DEFINITELY be contacting you!
Here are the terms the PML has informed us of:
LTV: 70%
Int: 9%
Term: 1 year with two six month extensions, 1 point per extension
Points: 3-4
No Pepayment Penalty
Lending Area: Nationwide
Must have solid exit strategy that makes sense and is realistic.
Closing time: 7 to 10 days from time all documents required/requested are in the lenders hands.
Property Types: Will lend on Single Family, Multi Family, Commercial, make sense kind of deals.
Term sheet usually provided within 24 hours from initial conversation.
I hope this is something that can help those here who need money.
My advice is to be upfront with our guy from the start. If you don't know something, advise and you will be given an answer.
Serious inquiries only, no maybe I have a deal, may be I don't games. This is a very real and very serious individual, who has been at this a very long time and is not afraid to tell someone NO.
Thanks for the answer. This is really good info.
Tammy, thanks for the PM will be in contact with you, and when I saw this post, I thought of you and the HML you are dealing with.
Sandi
It sounds good to me! One quick question. Is the LTV off of ARV or Purchase price?
Thank you!
It is CERTAIN we will SUCCEED!
That is good news for a change. Would like to talk further and will send you a pm. The rates don't look bad at all and believe me Jeremy and I have been all over the net and talking and talking with PI's. Talk soon...Jan
Sounds great,I do a lot rehab flips,Quick turn over three months from purchase to retail sale.
Nice to know if he does these.
Jim Kendrick
http://kendrickpropertymanagement.com/
http://rochesterapartmentrentals.com/?page_id=10
Tammy asked a question, which I would like to know also.
Is it LTV or ARV?
Also can you explain this.
If you give the loan for 6months for ex., and I would rehab a home and then lease option or during that time, sell with owner financing, first couldn't do owner financing, because I have a loan to pay off, right? How do I have an solid exit from that. Or how would I know that if I find a buyer who needs time for financing, how do I come up with that exit in the time frame.
Or is the end buyer needed before rehab or flipping?
Just never dealt with any of this before, so don't know how this works.
Thanks
Sandi
I have a big spread in my ARV to the purchase price (which is 65% of the ARV). I'm already working on it and set to go! WOOT WOOT! Thanks Jimmy! Awesome networking and invaluable resource! Do you know I actually had contacted this guy several months ago before my computer outage (lost my contacts)! He was one of the people I had put on my power team! IRONIC! He remembered the pic and my comjpany logo in my email!
Jimmy, Paul Jacobi and myself have built a great friendship the past few months. I am glad to see that he could help you. He told me about the deal and said he was very impressed with you.
Best of luck to you.
Things must really be different here in Colorado! I have no less than 4 HMLs that will lend 70% of ARV. The most expensive is 4 points and 15%. The least expensive is 2 points and 12% all have a nine month balloon. All have credit score minimums and require 6 months of interest payments in the bank before they will loan. None charge any up front fees. They all have their own appraiser determine the ARV they will lend on.
They have there place and I will continue to use them. Fast funding, multiple deals, save a deal, no private money because it tied up in other deals are a few of the reasons to use hard money.
You must buy right or these guys won't fund you! They run the numbers on the rehab estimates, your buy price, your closing, commissions and holding costs. You must have the property under contract.
Here is an example of a hard money deal I did using the most expensive guy!!
Bought for $87,000
Re hab $20,000
My ARV and the HML ARV matched (a good thing!) at $160,000
They would lend up to 70% of ARV = $112,000
I only needed $108,800 covered buy, rehab and closing costs
Sold for $150,000 in 3 months
Here is what I made using expensive hard money.
Money costs - 4 points - $4352
Interest payments - $4080
Commissions - $7900
Closing costs - $1695
Re hab - $21,229
Purchase - $87,000
Total costs - $126,256
Net profit - $23,744 USING THAT HORRIBLE HARD MONEY!!!
Ive done three deals within $1500 of purchase price and ARV in the last 5 months. Bought two at the same purchase price of $87,000. Entry level stuff. Any way I used hard money on all three!! I have used private money on deals and am currently using it to fund a couple of deals as we speak. I will always use private money first, but if I can't line it up or it's not available or I need cash fast I will use hard money in a heart beat!!
The bottom line is DON'T LIMIT YOURSELF!! Learn how to acquire and use every source of funds you can and when someone says never do this and my stuff is the only way to go, RUN!! They are flat wrong! What should I have done, turn down the deal because I had to use hard money?
Michael Mangham
MD Home Acquisitions LLC
Knowledge is power, but execution trumps knowledge. Tony Robbins
http://www.mdhomeacquisitions.com Seller site
http://www.mdhomeacquisitionsbargainhouses.com Buyer site
http://www.mdhomeacquisitionshousehunter.com Bird Dog Site
http://www.mdlodeals.com Tenant/Buyer site