Hard Money and Contractors in Charlottesville, Va

[Christopher Meadows]

Hello All,

I am placing a bit on my first investment property in the Charlottesville, VA area. I already own a home in the area but this will be my first investment property. My question is in regard to hard money lending and contracting? Generally speaking, I have the money to cover the property purchase or the rehab, but not both unless I get a great deal.

My question is: What is your criteria for choosing a hard money lender? I have never used hard money lenders before but based on the research I have done, there seams to be a lot of variation in how they all do business. I have read that some vary from 0 points up to 5 points and then the interest. Looking for some thoughts from the community in that regard. What do you all look for in a local hard money lender?  Where do you all draw the line with respect to hard money costs?

For contractors, (aside from stalking folks at the local Lowes and dragging Craigslist) where are you all finding your contractors or subs?  I have used Thumbtack.com for my own home handyman items. Does anyone have any experience finding contractors to work your rehabs using this service?

Lastly, I have met a contractor in the local area that is interested in doing a deal, but he does not have the cash reserves to do a 50/50 deal (In my opinion). He can cover 10-15k of rehab expenses but that is it. In my mind, on an 80k all in deal (35K being rehab), I would split the profit from the sale with 19% going to the contractor and 81% going to me. This is assuming we split profits according to total investment contributions (his 19% vs my 81%. Does anyone have any experience doing deals this way or see error in my logic?

Thanks

Chris

[George Taylor]

Hey there @Christopher Meadows So from the HML perspective. Since this is your first deal you should expect not the most favorable terms. If you have the cash for the purchase but not purchase and rehab what I would suggest doing is just get a HML for the purchase. When it comes to a loan including a rehab budget, the lender has a LOT to say about what's going to be done. It has to be through a licensed contractor, the upfits have to be in line with the local market, and basically the work has to be justified. Plus most HML's work on a draw basis so you will have to pay for a least some of the rehab upfront then put in a draw request to get reimbursed, and those draws cost money to pull them.

Let's say you can take care of the rehab yourself and you want a loan on the purchase. You would have complete control of the rehab, who does the work, how it's done, the materials you use, etc. The major difference is with a purchase only you can probably get away with the lender requiring only a BPO $200 compared to a full appraisal $500+. Either way you are looking at a loan of 75% LTV, probably 12%+ and 3-4 points. You would be expected to bring around 20% down to the table plus closing costs.

Don't let those numbers scare you off, though. Hard money isn't meant to be a permanent solution. Secure the property with a quick (under 20 days) HML, get the property fixed and sold or rented and after seasoning, if rented, do a cash out refi and move into a conforming loan. HML's typically have no prepayment penalties, also.. The quicker you can turn the property around the better for all of us. Feel free to check out our website and reach out to me whenever you have some questions. Hope this helped out a little.

 One more thing. Don't let the origination fee scare you off, either. Those are almost always negotiable, to a certain extent, and normally reflect the value that company brings to the table.