HML Math Question

16 Replies

Hi all!  

I had a question. From my understanding, most HML want you to have a financial stake. I've spoke to some via BP site and most want you to put down 20% of the purchase price of a home and they can front the other 80%.

My question is that if they are on a 9% IR and let's say I flip a home and sell it within 2 months, does this mean that I am going to pay them: 

Loan Amount + Loan Amount x IR% x  _months?

So, let's say it's  500k loan with 9% IR then it's $45,000? 

Or does this break down based on a 12 month term, so 45,000/12= $3750 x 2 months = $7500  

Can someone please help to clarify? Thank you! 

You second example is correct. The interest rate is on an annual basis. If you only use the money for 3  months you only pay for 3 months worth of interest. 12% interest would be 1% per month. 

However Most hard money lenders want "Points" up front. A point is one percent of the loan. There may be other fees involved also.

So the math would work out like this at a 9% rate: $500,000 x .09 (annual interest) = $45,000 / 365 = $123.28 per day interest (assuming it is interest only loan) x 60 days = $7,397 in interest paid

Keep in mind most hard money lenders charge 2-4 points. So if it is 2 points you will have another $10k in cost of money.

Make sense?

@Ned Carey  / @David O.  

Another question: If you have a HML, I always read that you should be careful about giving your money to someone else.

With that said, it sounds like your HML would be the one that would make the offer on the home, correct?

Are there any agreements or templates available to help protect me when handing over the other portion of the amount thats needed for 20% of the purchase price?

Account Closed It's true you need to be very careful about who you hand your funds over to. In any real estate transaction make sure there is a reputable title company involved. The title companies role is to facilitate that transaction, ensure that a clean title is being conveyed and hold funds in escrow. If you are working with a local hard money lender they will generally have a local title company that they have done multiple deals with. The title company will open an escrow account once you have a deal under contract...you will fund that escrow account with your earnest money deposit and eventually with your downpayment money. The HML will be cutting checks/ sending there funds via wire to that title company as well...

You will be making the offer on the home (or you and a realtor) and getting it under contract. Your contract and the reputable title company are your protection. 

If I might ask a question you @David O. answered for Account Closed.

You wrote:

In any real estate transaction make sure there is a reputable title company involved. The title companies role is to facilitate that transaction, ensure that a clean title is being conveyed and hold funds in escrow. If you are working with a local hard money lender they will generally have a local title company that they have done multiple deals with.

If making sure there is a reputable title company involved, why then would the HML title company be used instead of one that is neutral between both parties?

Thank you

Originally posted by @Daria B. :

If I might ask a question you @David O. answered for Account Closed.

You wrote:

In any real estate transaction make sure there is a reputable title company involved. The title companies role is to facilitate that transaction, ensure that a clean title is being conveyed and hold funds in escrow. If you are working with a local hard money lender they will generally have a local title company that they have done multiple deals with.

If making sure there is a reputable title company involved, why then would the HML title company be used instead of one that is neutral between both parties?

Thank you

I believe @Troy Durrette is right to suggest: who has the money, makes the rules. Why would your HML agree to anything they don't like?

The HML's I have worked with our reputable and have been willing to use a title company at my request. They sometimes have one that they prefer and as long as that title company is reputable...it's all good.

@Daria B. talk to other investors, serious investors know who the good title companies are. 

HML will generally use one of the best in the area. They want the title to be perfect and use some of the most thorough and nit-pickiest title companies to protect their interest.

Originally posted by @Ned Carey :

@Daria B. talk to other investors, serious investors know who the good title companies are. 

HML will generally use one of the best in the area. They want the title to be perfect and use some of the most thorough and nit-pickiest title companies to protect their interest.

I understand better now. Thanks for answering. I think I just needed it explained in a different way. :-)

Account Closed

Great post and feedback from everyone! I recently uploaded a "Hard Money Lender Profile Sheet" today which you can use to assist in asking the right questions when "interviewing" a HML. The document can be found under "Tools" - "File Place" and a screenshot is below for ease of navigating to the proper document. Thanks and best of luck to you!

Originally posted by @Jonathan Ortiz :

@Susie Chhuor

Great post and feedback from everyone! I recently uploaded a "Hard Money Lender Profile Sheet" today which you can use to assist in asking the right questions when "interviewing" a HML. The document can be found under "Tools" - "File Place" and a screenshot is below for ease of navigating to the proper document. Thanks and best of luck to you!

*___* APPLAUSE! Thanks for this