how do you calculate HARD MONEY???

Question

hOW DO YOU CALCULATE A  HARD MONEY LOAN USING A CALCULATOR? iN OTHER WORDS CAN SOMEONE GIVE AN EXAMPLE OF  A SITUATION THAT  THEY NEEDED HARD MONEY AND SHOW US THE MATH. THANKS IN ADVANCE.

Reid Griffith · Answer

So would this math be safe to assume if we have a 12 month interest only loan:

$90,000 loan | 10% interest rate | 12 months

$90,000 x 10% = $9,000 / 365 = $24.65 / day interest

Jim Watkins · Answer

Charles Whittaker couldn't have said it any better.
That is almost exactly what I call a standard Hard Money loan.

Almost.

The only thing I want to offer is this:
Proceed carefully if the term is for 6 months. The lender I use offers 18 months.
A 6 month loan where a rehab is involved can be very dangerous. You have to factor in the actual rehab time, time on the market and the time it takes to close once a contract is in place. If a contract fails for any reason, you could find yourself back at the start with finding a buyer.

To me, 6 months is too risky. ESPECIALLY with how soft the market is now with it being a buyers market. Listings have been going longer and longer.
I would feel better having at least a 12 month term versus 6 months where you could lose the house after all you have put into it.

-Jim Watkins

Account Closed · Answer

Charles,

I think you mean the points are a percentage of the amount you are borrowing. This is the principal plus any costs that are added into the loan. Added in meaning the loan is really the total of a few things (principal, points, closing costs, interest payments).

You are paying point on it all. You are paying point on money that you will never see - the interest payments that happen in later months.

Second thing to highlight for others. Not all hard money will allow the monthly payments to be rolled into the loan. Not all borrowers want the payments to be rolled in. Some of the time it is better for the payments to be paid each month by the borrower.

The LTV for the loan is based on the amount borrowed. The more you roll in costs including points or other closing costs the less cash you have to buy the property and do the repairs.

Great point about what the house is really costing the buyer. There are also other costs (utilities, repairs not funded by the loan, etc). Hence any buyer needs to look at the total all in costs before thinking about the profits.

There is an alternative that you failed to mention. The HM loan can be paid off. A refinance or a sale would work fine. Some hard money lenders are not all that interested in rolling the loan over. They see the lack of ability to pay the loan at the end of the term as a warning sign that the deal will go bad. They might agree to a deal but paying hard money rates after the project is done is not a winner. Best is to move on with better financing or sell that puppy.

To all: If you are holding a property with a HM loan then drop the price if you are not getting offers. This thing is costing you monthly and a price reduction now will generally be better than a few more months holding out for a higher price with HM charges. Do understand if you should get any of the loan amount back if you pre-paid the interest and then failed to use it.

John Corey

N/A N/A · Answer

ok basically in a nut shell it is best to be used for rehabbing because of the high return profit potential.

N/A N/A · Answer

thanks   seriously, I am more than grateful.