IT Professional · Houston, TX · Member since 2015 · 101 posts · 47 votes
So I've watched a pretty good presentation on 'hard money' from Rich Club's webinar archive.
Cal Beran hosted the session and he is from "Longhorn III Investment.'
His examples were clear and his step by step process make sense, too. However, as any newbie would want to know is the 'how's'?
How do you know when it's time to use 'hard money' as an option?
In other words, I know hard money is a tool that can work for a REI investor and I am sure it's not meant for every deal or every investor out there.
I would like to get a feedback on:
1) what kind of deals makes it a good deal to use hard money for?
-The criteria to spot such deals should be different than a deal that one would use conventional financing for but what are they?
2) What kind of check list should an investor have when looking at a hard money deal?
-Since the risks are higher in this kind of financing, I am sure it would come with some common pitfalls such as under-estimating repair costs, not knowing the market well, not knowing how to to calculate ARV?
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
10y
Analysis.
HML isn't a loan...it's an expense for rehab/purchase money. There IS a difference. A loan to a FEI should be something they carry, but a HML is the cost of of the money needed to do the rehab. This means, if you have a time overrun...you have a cost overrun during rehab, since the cost of the HML is based on a per month basis.
This is where my initial comment, "analysis", comes into play. Your purchase/rehab analysis must include the cost of the HML in the cost of the rehab.
When to use it? When your analysis shows this is a better option than the alternatives, such as a partner, your own cash, a rehab loan, an LOC from another property, etc...
1) I'd say deals with large spreads in which you don't have enough liquidity to purchase the deal with your own cash.
2) At the financing ? Or the actual deal ?
If you're talking about financing, I would definitely want to know how many points and what the interest rates were. I'd want to make sure they're reputable if you've never worked with them before. I'd want to know how difficult their process is. I'd want to know how fast they can close. I want to read the fine print to see if there's anything in there that is fishy. For example- I work with a hard money guy that charges a minimum of three month's interest. It doesn't matter how long I hold the property, the minimum I pay is 3 months.
Residential Real Estate Broker · Rockport, TX · Member since 2015 · 19 posts · 3 votes
10y
The only way I would use hard money is for a bridge loan where I was absolutely sure that I would not need that hard money loan for more then a period of 30 or less. There may be other circumstances, but the point is I want it for only a short period of time
Investor · Topeka, KS · Member since 2015 · 1k+ posts · 1k+ votes
10y
Hard money should be a last resort. It will likely be the most expensive money you get, outside of partners. Ideally, they will be short loans so they are often used for flipping.
Investor · Topeka, KS · Member since 2015 · 1k+ posts · 1k+ votes
10y
Be very certain you are going to be able to refi and pay off the HML with a traditional loan quickly after you get it rented. I think the BRRRR strategy includes a refi in there.
do you mind explaining a little bit more in detail in what you mean by a deal with a larger spread? What calculations are you using to calculate the spread and what qualifies a large spread?
Thank you for walking me through the 2) on the financing side. That's all very good points. The process itself does have enough elements where if a newbie isn't careful about checking out these details ahead of time, they would end up losing some money.
What about on the deal itself? Do you mind talking about what deals make it a good deal to use hard money to finance?
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
10y
Analysis.
HML isn't a loan...it's an expense for rehab/purchase money. There IS a difference. A loan to a FEI should be something they carry, but a HML is the cost of of the money needed to do the rehab. This means, if you have a time overrun...you have a cost overrun during rehab, since the cost of the HML is based on a per month basis.
This is where my initial comment, "analysis", comes into play. Your purchase/rehab analysis must include the cost of the HML in the cost of the rehab.
When to use it? When your analysis shows this is a better option than the alternatives, such as a partner, your own cash, a rehab loan, an LOC from another property, etc...
IT Professional · Houston, TX · Member since 2015 · 101 posts · 47 votes
10y
@Joe Villeneuve thank you for making that important clarification. What you said makes 100% sense to me. Hard money is a cost that needs to be covered by the spread. Otherwise, the deal isn't good enough to use hard money loans.
@Joe Villeneuve thank you for making that important clarification. What you said makes 100% sense to me. Hard money is a cost that needs to be covered by the spread. Otherwise, the deal isn't good enough to use hard money loans.
Thanks for the insight!
Another way of looking at it is by treating your HML as a partner...that you want to buy out ASAP.
IT Professional · Houston, TX · Member since 2015 · 101 posts · 47 votes
10y
@Brit Foshee Congrats! Looks like you have done a fantastic flip deal recently! how is the negotiation going?
So it looks like you got this deal through a wholesaler who negotiated a deal from the bank directly? So this was a foreclosure/bank owned property?
did you use hard money on this deal because this house wasn't in a condition to qualify for a 30 year note or was it because you needed to close very quickly or was it because you needed to borrow money for the rehab?
I would like to know why you chose hard money on this deal.
IT Professional · Houston, TX · Member since 2015 · 101 posts · 47 votes
10y
@Jacob Sampsonyou brought a very critical point here and I am sure this is why many people turned away from using hard money on a BRRR deal. What are the pointers to make sure you can get your rehab project refi-ed, after you completed your rehab and got it rented out?
If you don't get it re-fi in time, what are the exit strategies? put it on the market? find private lenders?
@Jacob Sampsonyou brought a very critical point here and I am sure this is why many people turned away from using hard money on a BRRR deal. What are the pointers to make sure you can get your rehab project refi-ed, after you completed your rehab and got it rented out?
If you don't get it re-fi in time, what are the exit strategies? put it on the market? find private lenders?
Here is my opinion, which won't be popular. I believe that ones access to capitol is a good gauge of their readiness to play this game. Meaning, if you need hard money, it is a good sign your not prepared. I think hard money is a high risk scenario that does more harm than good. I'm sure 100 people can tell me how hard money worked well for them, but to me, it is the same as an inside straight draw in poker; plenty of people have hit it, but that doesn't make it a smart strategy, over the long run. Or the lottery. People win millions every single month but that doesn't make it a winning strategy.
To your question, you better have it worked out with your bank beforehand, that they are willing to refi it when work is completed.
Investor · Austin, TX · Member since 2015 · 43 posts · 25 votes
10y
Talk to hard money lenders about the whole process, ask them every question you can think of. Then meet with multiple mortgage brokers or banks and be sure you will be able to refinance when youre done if you dont want to sell it. Get out there and ask questions. Then youll be prepared. I used hard money on my first deal. It has worked out great, but it was also a very good deal, so there is plenty of room to cover the high interest loan.
@Brit Foshee Congrats! Looks like you have done a fantastic flip deal recently! how is the negotiation going?
So it looks like you got this deal through a wholesaler who negotiated a deal from the bank directly? So this was a foreclosure/bank owned property?
did you use hard money on this deal because this house wasn't in a condition to qualify for a 30 year note or was it because you needed to close very quickly or was it because you needed to borrow money for the rehab?
I would like to know why you chose hard money on this deal.
I used hard money frankly because I didn't want to tie up 300K of my own capital. It would not have qualified for a 30 year note.
I have other projects going on and like to stay as liquid as possible. We had a BPO of 500K before the house was ever rehabbed so we felt very comfortable putting hard money at 365 purchase price.
So I've watched a pretty good presentation on 'hard money' from Rich Club's webinar archive.
Cal Beran hosted the session and he is from "Longhorn III Investment.'
His examples were clear and his step by step process make sense, too. However, as any newbie would want to know is the 'how's'?
How do you know when it's time to use 'hard money' as an option?
In other words, I know hard money is a tool that can work for a REI investor and I am sure it's not meant for every deal or every investor out there.
I would like to get a feedback on:
1) what kind of deals makes it a good deal to use hard money for?
-The criteria to spot such deals should be different than a deal that one would use conventional financing for but what are they?
2) What kind of check list should an investor have when looking at a hard money deal?
-Since the risks are higher in this kind of financing, I am sure it would come with some common pitfalls such as under-estimating repair costs, not knowing the market well, not knowing how to to calculate ARV?
Thanks!
Iman
Simple answer hard money can get very expensive, use it when you can 100% get out of the deal fast. It does serve a purpose for short term money. It just can get very expensive , if you cant get out.
So I've watched a pretty good presentation on 'hard money' from Rich Club's webinar archive. I am in a gay community because I earn money cash me iut in this page under you at the store bring 100 billion cash and people to give me my money I will talk I will get a milk and ciggerette never I cj I p code to get 100 billion I'm omnoyu once I get this I will tell you I'm in yellow never I have period touch never I need my money accidently is going on worked in nothing really I am helping you to get away from those do give a girl who is weakest and pretty
Cal Beran hosted the session and he is from "Longhorn III Investment.'
His examples were clear and his step by step process make sense, too. However, as any newbie would want to know is the 'how's'?
How do you know when it's time to use 'hard money' as an option?
In other words, I know hard money is a tool that can work for a REI investor and I am sure it's not meant for every deal or every investor out there.
I would like to get a feedback on:
1) what kind of deals makes it a good deal to use hard money for?
-The criteria to spot such deals should be different than a deal that one would use conventional financing for but what are they?
2) What kind of check list should an investor have when looking at a hard money deal?
-Since the risks are higher in this kind of financing, I am sure it would come with some common pitfalls such as under-estimating repair costs, not knowing the market well, not knowing how to to calculate ARV?