First Hard Money Deal

6 Replies

I am currently applying for my first hard money loan and they want the scope of work, we will probably be doing most of the work ourselves so since I do not have a contractor I'm trying to figure out exactly what I should include in this scope of work I have looked online and seen so many different examples, so I was hoping that someone who has used hard money lenders before could provide me with some insight as to what exactly I should include.  Please and thank you guys.

Meghan McGuire

@Meghan McGuire write up your scope of work as if you were having someone else do the work, a contractor for instance. If the retail cost, i.e. how much you would have to pay a contractor, is $25,000 then write it up that way. If you are doing some of the work yourself this is usually fine as long as you know what you are doing and then you will ultimately save money in the end. For example if only $20,000 of the $25,000 is spent you'll effectively save yourself $5K once the payoff time comes. 

The reason you need to write it up this way is because if you get taken away in a tornado a contractor will have to be hired to finish the job  :)  You always want enough $ in the budget to complete the rehab according to the scope of work.

Good luck!

You will want to check with your hard money lender because many will not release funds for you to do work yourself.  Also it is advisable to shop for details on the hard money lenders because a lot of them will nickel and dime you to death constantly charging you for all kind various expenses.

As a HML, this is what I like to see in a SOW:

  • Make a list of all the improvements you want to make. 
  • If you want to group some of the items together, great - put them under a heading that makes sense (ie electrical, concrete work, etc)
  • Assign a dollar value to each item or just to entire groups of items.

You and your lender may go back and forth a bit about what is and isn't in the list, how they are grouped, and the dollar amounts - this is normal. 

The purpose of this exercise is:

  • To give me an idea of what this project will entail, cost, possible risks, etc.
  • Shows me you've done your homework and know what you are talking about. (Or not)
  • I only disburse rehab funds for completed work. You compete an item our group that has a dollar amount assigned....You get paid. If it's 99% done, no money. 
So, if you put in the time to make it detailed and thorough, you'll be better prepared, and it'll increase your odds of getting the loan. Also, if you make a terse list, when it comes time for rehab draws, since you didn't add more detail than "rehab kitchen" you have to finish the entire kitchen get paid. If you break out cabinets, countertops, kitchen floor etc, you can get paid for completing smaller pieces of work. This flexibility can be really helpful as various things might get delayed midstream for a myriad of reasons.