Good Old fashioned hard money lending!!!

My question is does the "Good old fashioned HML" still exist. Meaning an equity based property dependant HML that does not focus on credit. All the ones I've run across may as well be a "Much" more expensive Bank of America or Wachovia with the way they opperate. If the investor had a 680-740 credit score then why would he/she need hard money when conventional would be available?

Most I've seen lend up to 65% ARV on a property which still leaves 35% just in case the investor is a goof. Seems pretty safe even without being credit dependant.

If anyone knows of some "good old fashioned HML" please let me know. We're located in SC if that makes any difference.

Thank You!!
Rodney Taylor
Global North Realty Services, LLC

Edited: 06/26/2010 at 07:49AM

Jon Holdman

Real Estate Investor · Wheat Ridge, Colorado

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Apr 02 '09, 11:32 PM

Its been discussed several times lately. So far, the answer is no, such lenders no longer exist.

Why would they? This worked great in the boom because they could lend to someone with a weak deal, let the rehabber do some work, the repossess the house and sell it for a nice profit. That doesn't work anymore. So, lenders want people who can actually follow through and complete the project.

65% or 70% is hardly safe. If the borrower does no or little work on the property, it will be worth what they paid. If the lender takes it over, they may have to sell even cheaper if they want to get rid of it. Even if the borrower gets it fixed up, the lender may have a hard time selling. Many of the best deals are in areas with lots of foreclosures. Your nice house has to compete with all those foreclosures.

Plus, there are plenty of borrowers that do have some of their own money, and do have good credit. Lenders can be choosy.

Sorry.

Edited: 06/26/2010 at 07:49AM

Jon Holdman, Flying Phoenix LLC

Michael Culler

Real Estate Investor · Tampa Bay, Florida

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Apr 03 '09, 01:38 AM

Yup, spot on. Hard Money Lenders that are lending in this market need to feel comfortable with the investor. No longer would ANYONE want to have to foreclose on a home.

By the time you buy it at 65% ARV and the HML forecloses the property has already depreciated in a lot of cases.

If someone wanted to throw money out like that, they would just make 40% offers on REO's themselves and skip being a lender all together.

That being said, investors with great credit are still being turned down for conventional mortgages (bank loans) for many reasons.

You own too many properties

You cant document your income for Debt to Income to work

There is a wholesaler assignment fee on the HUD

The property is in a serious state of disrepair

You havent been in the same line of work for 2+ years

There are dozens of reasons why a person with good credit would still need private or hard money lenders.

Hard money is based on After Repair Value and not purchase price.

Hard Money allows assignment fees, closing costs, rehab costs, and even payments to be rolled in!

If you go to the bank they will ask for 20+ percent down, expect you to pay for repairs out of pocket, and will not allow assignment fees.

So as you can see Hard Money Lending changed somewhat, but still has many advantages over what conventional mortgage lenders are comfortable with.

Edited: 06/26/2010 at 07:49AM

Rodney Taylor

Real Estate Investor · Columbia, South Carolina

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Apr 03 '09, 04:52 AM

Thank you Michael and Jon for your replies. You're confirming what I have been seeing. I'm trying to find a way to limit the number of trandactions for my credit investor partners. i need to bring in more investors to JV with but the number of transactions seems to scare away most of the inexperienced (which is most or else they wouldn't need me). I really want to save'em for the refi. which makes more sense to them.

There's gotta be a wasy to make this work the way I need it to. Any suggestions would be greatly appreciated.

Thank you!!

Edited: 06/26/2010 at 07:49AM

Michael Culler

Real Estate Investor · Tampa Bay, Florida

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Apr 03 '09, 02:19 PM

Can you take some deeds sub to in your area? Hold them through the rehab, and then use your investor's to refi?

Or use the JV partner for the acquisition utilizing hard money, then use the same partner for the refi?

Edited: 06/26/2010 at 07:50AM

Rodney Taylor

Real Estate Investor · Columbia, South Carolina

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Apr 03 '09, 10:40 PM

Hey Michael.

Yes on using the JV partner. No on the subject to. Using a JV partner works for me but not as quickly as I need it too. The more times they have to come to the table the more fear they have which is why I was hoping to streamline the process. I've never done a sbject to deal but I've read great things about them. I've been wanting to do a sub to deal but since I don't know much about them I have to use caution.

What can you (or anyone) tell me about them? I would love to make this a regular tool in the box with a little more knowledge.

Also Michael, what would be some of your requirements for lending HM?

Edited: 06/26/2010 at 07:50AM

Michael Culler

Real Estate Investor · Tampa Bay, Florida

180 posts
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Apr 05 '09, 10:56 AM

Rodney,

As for Sub2, the best bet would be to check with your local real estate attorney or title company to make sure you do things legally for your area. I know with the turmoil in the financial markets, some states have changed what they allow you to do. I know my attorney told me we can no longer do Sub2 with a lease back. So just be careful, and get competent legal advice for your specific location.

As for Hard Money requirements, its not as easy as it used to be, but not that difficult yet either.

640+ mid FICO score
At least 15k in liquid assets (not 401k)
5% skin in the game

Will get you

Up to 70% ARV
Rolled in Closing Costs
Rolled in Rehab Costs
First 6 months included in loan
No Pre Payment Penalty

So you use your JV partners credit and assets to put 5% of the project up. The rehab is escrowed and paid on draws to your General Contractor.

Once the work is completed you refinance, or market your property for sale.

Loan term is 6 months with extensions available as needed.

Edited: 06/26/2010 at 07:50AM by Michael Culler

Mark Gorjestani

Homeowner · Calabasas, California

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Dec 14 '09, 04:08 PM

In California we will lend hard money and do not consider credit at all...FYI. In fact there are a few states where that is the case. However, if the LTV is higher then lets say 55% we need other compensating factors. I also find that local hard money is more flexible. We lend based on each file...black and white guidelines.

MDG- Finance One

Edited: 06/26/2010 at 10:51AM

Clifton Burse

Real Estate Investor · Suitland, Maryland

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Dec 23 '09, 12:10 AM

Hello Mark, do you lend hard money in the state of Maryland

Edited: 06/26/2010 at 10:57AM

Will Barnard

Rehabber · Santa Clarita, California

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Dec 23 '09, 12:23 AM

Jon and others made some valid points as to why HML's do check credit and other items. It is not just a black and white thing these days. I will add that the credit score and past history of flips is a reflection or a sign to the lender of how well you will perform. If your credit stinks, the risk goes up. If this is yoru first or second flip, the risk goes up. These factors are infomation that the HML needs to know to gauge the risk.

I provide funding for deals, although it is transactional funding and not hard money and in most of my lending scenarios, the deal is the only item considered, not the credit of the borrower.

Edited: 06/26/2010 at 10:57AM

Will Barnard, Barnard Enterprises, Inc.
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