Hard Money and Contractors in Charlottesville, Va

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Hard Money and Contractors in Charlottesville, Va

Christopher Meadows
Lender · Wilmington, NC · Member since 2015 · 3 posts · 1 vote

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

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George Taylor
Wholesaler · Myrtle Beach, SC · Member since 2017 · 276 posts · 80 votes
9y

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. 

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  • George Taylor
    Wholesaler · Myrtle Beach, SC · Member since 2017 · 276 posts · 80 votes
    9y

    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. 

    3Reply
  • Stephanie P.Pro Member
    Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
    9y

    @Christopher Meadows

    Welcome to the world of investing!

    To answer your question directly regarding pricing and terms, for a hard money loan, you should expect to have a loan to value on the purchase price of up to 80% and the rehab should be covered 100% in an escrow draw account.  As the work is completed, you request a draw and after inspection, you get some money.

    Rates are generally between 9-12% and cost anywhere from 3 to 5 points.

    I would try to pay the contractor as a contractor and not a partner.  If you have the money to buy the property or do the rehab, use someone else's money and do the whole thing yourself.

    Not a solicitation, just one girl's opinion

    Stephanie

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  • Ariel Salvaro
    Lender · Charlottesville, VA · Member since 2017 · 37 posts · 11 votes
    9y

    Hi Chris, 

    I am happy to see a real estate investor from my own local community! 

    Everything @George Taylor said from the HML perspective stands.

    To be on the conservative side of things, I would personally suggest planning on a 70% LTV ratio, the way BiggerPockets guide suggests it - there are almost always some unexpected surprises along the way (big or small), and it's better to have a little bit of that extra cushion for when they arise.

    Choosing the best HML for you is best done by shopping around - BP has a list of HMLs serving Virginia (we are among them, I am happy to make an introduction to our team).

    Regarding your contractor situation, I think the approach @Stephanie P. suggests is more standard, so I guess it ultimately depends on whether you think you would profit more in your flip than you would pay in the extra loan amount if you don't include the contractor as partner vs. including the contractor in with his 19%, and having 19% less of the loan to repay, but also getting 19% of the final profit. 

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  • Christopher Meadows
    OP
    Lender · Wilmington, NC · Member since 2015 · 3 posts · 1 vote
    9y

    @Stephanie P.. @George Taylor and @Ariel Salvaro I appreciate you all taking the time to grant me some insight into the world of HML. I think I will attempt to use HML for the property purchase and my own cash for the rehab. The property I'm interested in is up for auction right now but I feel the starting price is too high. Since the same company has attempted to auction it twice (Oct and Dec of 2016) to no avail, I don't expect it to sell this time either. The auction ends tomorrow so I guess we will see. I have reached out to the company that owns it to submit my written all cash offer. We'll see what they say.

    @George Taylor

    1Reply
  • Ariel Salvaro
    Lender · Charlottesville, VA · Member since 2017 · 37 posts · 11 votes
    9y

    Chris, happy to help! And good on you for being proactive, and reaching out to the company - based on the situation, it sounds like you might have a motivated seller, let us know how it goes! 

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