Reputable HMLs for first flip?

Question

Hello all!

I’m based in Michigan and looking for a reputable hard money lender to fund my first fix and flip project. I understand I’ll need to do my own due diligence on any company I work with, I’m just trying to weed out the lenders that aren’t as advertised. Any recommendations from investors who’ve actually closed deals in Michigan would be appreciated.

Thank you!

Drew Sygit · Answer

@Asaan Watson what percentage of the project funds are you looking for the HML to provide?

What purchase price are you targeting and how much in rehab?

Erik Estrada · Answer

Hey Asaan,

Make sure to look up company reviews, licensing, and have the terms in writing. There are a lot of fraudsters in this space.

Zachary Deal · Answer

Hey Asaan, definitely avoid any lenders that are offering 100% financing. If it seems too good to be true it is and avoid paying any upfront app fees, etc!

Mike Klarman · Answer

I've worked with all the big box institutional HMLs on bridge loans.  If you can share the numbers of your deal I can best direct you.

The hardest part of the deal will not be the lending, it will be finding the deal.  After being on the front lines as a broker/loan officer/consultant/investor I can tell you that there are many pitfalls taking the conventional approach:

MLS searches/Natiomal Wholeslaers - you will overpay at timesHMLs - does your deal fit their guidelines for top leverage, most times no if on marketLocal Agents providing compsLocal GCs providing/performing SOWs

I've seen this approach, I've heard others speak of it early in my career in this industry as "the way".  If this approach worked one time for someone they caught lightening in a bottle.  I've seen that approach lose may way than it won.  Those wanting to enter this arena don't realize the Project cost to ARV ratio is everything.  It's what will choke you or give you the wiggle room you'd like at the exit.  I've seen the 75% rule fail miserable once real world factors take hold.

Sourcing is a huge factor.  Where and How you source matters.  There's lots of investors doing the same things to find properties.  The investors I know that do this to scale either get their deals direct from seller, or from an auction, or from a foreclosure.  It is sourced from a network that has a built in discount.  So the rookie investor using the MLS paid 110% of. the value and the seasoned investor paid 70% of the value where he/she shops.

You really want the project costs to be 65% or lower.  The ones in the 50s are the home runs.  You only find them on the secondary - cash markets.  Wouldn't make sense that a property with a 55% project cost to ARV would just be sitting on the market.  It would have an offer in days or hours and more than 1 and someone would bid it up till the project cost was 75% cause they have money and they are BRRRRing it and if they need to leave 10k, 20k, 30k in they can.  That's why savvy investors with thin capital are at a steep disadvantage.  You have guys with big capital who are playing he long game and do not care about short term costs or cash flow.  They are just acquiring RE for the long-term.

Being able to find money can be as much as a curse as a blessing.  I was with many first investors who applied the traditional methods and half way through wish they never did.  If anyone is familiar with Murphy's Law, it states: Anything that can go wrong will go wrong.  You will get up close and personal with that universal law if applying the traditional way.

You have to be able to source in secondary ways....You need to either source in cash or with a PL that does the 100% LTC with rehab...

Once you have the deed, it needs to get analyzed by your trusted boots on the ground if that's not you and if it is you, you better know what you're analyzing.  Here's a good formula:

((Comps - 10%) * 65%) - PP = Rehab you can afford

If it fits the formula as a flip, have your PL supply the rehab funds and take it to the finish line and you will be able to sell this for 10% under market and still make a nice 35% - 30% return.  If it doesn't fit as a flip, what do you do?  You clean the house out if need be, you do the landscaping and you sell it as a shell through a wholesaler or on market for as close to actual value as possible.  People overpay and buy bad real estate all the time.

I bought a house at Auction in June for 39,500.  I have it under contract to sell for 70k.  I'm opting for a capital builder in a 3 month deal.  But I could also go the BRRRR route.  Getting in low with the BRRRR is what allows you to pull all your capital out plus and any money coming to you from a refi is tax free capital.  If I was flush with cash and didn't need to build capital, I can buy this house for 40k at auction.  I go to one of my lenders, and I do a bridge loan with a rental rehab of about 60k for this 3/1.5.  I'm into the house for 100k now between loan and capital.  House is worth 180k now.  55% project cost.  Rent is 2k per month.  I can do a DSCR cashout of 75% = 135k.  I can pull out rest of my capital and pocket like 35k and then have a house that cash flows about 500/month.  But that may take 9 months - 12 months or I can take 30k profit in three months.  That's what I opted for this time, but when I hold it will be a scenario similar.

I gave you lots to think about, I know, based on your simple lending questions but learn from my scars or risk getting your own.

Reputable HMLs for first flip?

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