So I am stepping outside my comfort zone of landlord/flipper and making a loan to a fellow investor for the down payment on a flip house. I am planning on taking 2nd as he is getting a hard money loan who will be in first. The house I have looked at and would have no problem owning the home if something went south. The numbers are good there. The loan is for 30k.
I am wondering what is the more standard rate/points for this type of loan and if there are any caveats I need to be careful of. I assume my attorney will have to file the note, can that be done at closing are is that best done before? Any advise or pointers to info would be appreciated.
@Travis Stern Is the investor putting any money into the deal? you could get wiped out if the 1st forecloses. assumptions: that the dp is 10% of the loan amount. 10% interest on $270000. $2250 interest only monthly payments. Are you willing to pay the payments to the first to keep it current? Can you get a mortgage to pay off the first for the ballon? What happens if the remodel stops midstream? Are you able to get a loan to finish the remodel before the balloon comes due? HML won't have to advance any money to you as you won't be on title. You will have to foreclose first or get wiped out. You will have to pay attorney fees and depending on the length of the foreclosure, time could run out and the 1st could start foreclosure. Tread carefully.
I would buy with cash if investor ran into trouble. The Hml is funding the rehab money and the investor is putting in 6k to meet reserves required by hml.
The concern is not wanting the property if it ran into issue, it is trying to put myself in position to either get paid or be able to clear the 1st and own the home.
This is the second home the investor is doing with the hml. First one went fine.
@Travis Stern To notify people you have to use the @ sign and start typing their name, double click and it will populate the comment box in blue and they will be notified, especially if you need some more clarification.
I would buy with cash if investor ran into trouble. The Hml is funding the rehab money and the investor is putting in 6k to meet reserves required by hml.
The concern is not wanting the property if it ran into issue, it is trying to put myself in position to either get paid or be able to clear the 1st and own the home.
This is the second home the investor is doing with the hml. First one went fine.
Lender · Santa Rosa, CA · Member since 2017 · 283 posts · 255 votes
7y
@Travis Stern Can you clarify the debt stack and the Purchase/Rehab/ARV? $6K from Purchaser/flipper, $X from you in 2nd position and $Y from HML in 1st position? Usually, HML is for purchase and 2nd (if there is one) is for rehab. This will definitely effect rate and term. I think Tim is guesstimating terms for the 1st? What are the terms the HML is providing? If you would pay off HML in a rescue, you might consider loaning the whole thing because in a sense, you are "tying up the money" for the 1st in case it goes sideways. Also, are you lending to the investor or to his LLC?
A lot depends on what state you are in also. In general, the title company/closing attorney should record your trust deed/mortgage at closing (can’t do it before hand). You will likely need an attorney (could be closing attorney) to draft a promissory note and trust deed/mortgage. There can be some pitfalls on this so you want to make sure attorney and title company review and are happy with it.
@Dave DeMarinis the latter of what you were saying about closing is what I expected. Just wanted to see if there was anything I may have been overlooking or should add. I did not want to tie up that much and really feel good with the investor as I have known him a long time.
I have decided I would rather make the loan and become an equitable partner in the llc for this deal. I wiIl spell out the terms in the llc which will take out some of the risk of being in second.
If you have done something like that before, any caution flags to be aware of that you know would be appreciated. Thanks