Birdsboro, PA · Member since 2017 · 16 posts · 15 votes
Hi All!
My husband and I have recently gotten our LLC approved by Pennsylvania and are on the look out for our first fix and flip. I have a question about hard money. We are looking at multiple hard money lenders to finance our deal. Would we be able to use a credit card as the down payment for the loan? Is there a better way to get down payment money? We don't have much in the way of capital as of right now, but both of us have credit scores of 820. Thank you!
Investor · Northern, VA · Member since 2016 · 1k+ posts · 904 votes
9y
@Luke Mitchell and @Danielle C. - So let me get this right.. You want to use HML who charges about 10-12% plus 3 to 5 points, and in order to be funded by HML you want to use another source of money which even charges higher interest rate (anywhere up to 25%). This is not just a terrible idea in theory, but practically speaking, I won't be surprised if most HML would decline to work with you, It shows that you are not financially sound for the deal to begin with..
If you don't have the money yourself, have you considered a JV with someone who might be able to bring cash to the table? Of course, the JV might want you to have some skin in the game (unless you have some other skill you are bringing to the table), so you might have to contribute at least something...
Contractor · Albany, GA · Member since 2017 · 57 posts · 33 votes
9y
I myself am kind of in the same boat. Even with floating the down payment, you must have the ability to pay the interest only payments to the lender for the loan and I assume, the rehab. I am currently looking for a lease option to sublet in order to build capital. Otherwise, I would suggest looking into a partnership with someone reliable or private money loans which usually have much better terms as far as interest rates and points. If nothing else, get Brandon Turner's book, Investing in RE with Low and No Money Down! Good luck!
Rental Property Investor · Temple, TX · Member since 2012 · 42 posts · 31 votes
9y
You can use the credit cards if you can get cash advances. It can be worth it if you have a great deal and you have enough available to cover any unexpected expenses when they come up.
I agree with Luke about needing to make sure you can cover the monthly holding costs. Also, you should make sure you know how long houses normally take to sell in your market. Then, make sure to factor that time into your holdings costs and construction time frame.
Congratulations on taking the first step and getting started. Good luck on your first flip!
Investor · Northern, VA · Member since 2016 · 1k+ posts · 904 votes
9y
@Luke Mitchell and @Danielle C. - So let me get this right.. You want to use HML who charges about 10-12% plus 3 to 5 points, and in order to be funded by HML you want to use another source of money which even charges higher interest rate (anywhere up to 25%). This is not just a terrible idea in theory, but practically speaking, I won't be surprised if most HML would decline to work with you, It shows that you are not financially sound for the deal to begin with..
If you don't have the money yourself, have you considered a JV with someone who might be able to bring cash to the table? Of course, the JV might want you to have some skin in the game (unless you have some other skill you are bringing to the table), so you might have to contribute at least something...
Banker · Philadelphia · Member since 2009 · 2k+ posts · 631 votes
9y
Hi @Danielle Cushman,
Welcome to BP!
Keep in mind the more the someone will fund the more you are leveraged. If your reserves are light and carrying costs could be short for the project. This could be a no go.
820 scores are great but no cash the lender sounds like loaning to own your potential deal.
There are some reputable Lenders in the PA market and do your homework.
Rental Property Investor · Philadelphia, PA · Member since 2016 · 40 posts · 53 votes
9y
If you own your home, can you get a HELOC? The interest rates on HELOCs are still low and you can use the money for anything. If you don't have a home you can look at peer to peer sources or partner with someone else. Best wishes!
Birdsboro, PA · Member since 2017 · 16 posts · 15 votes
9y
@Jake Washburn We do own our home, so we may consider the HELOC. I am more cautious about putting our personal home in this mix, but we want to get started in this business. @Joseph Scorese Do you have any HML you prefer to work with in PA? I have taken classes, done the research but we have never done a deal before... so any advice would be truly appreciated. Thank you!
@Jake Washburn We do own our home, so we may consider the HELOC. I am more cautious about putting our personal home in this mix, but we want to get started in this business. @Joseph Scorese Do you have any HML you prefer to work with in PA? I have taken classes, done the research but we have never done a deal before... so any advice would be truly appreciated. Thank you!
LOL.. The HML will require you to personally guarantee the transaction, which will override any LLC protection you get. Do you really think HML lenders are that naive to lend you on the property when you have NO prior experience, in your case NO capital, without you personally guaranteeing it.
@Jake Washburn We do own our home, so we may consider the HELOC. I am more cautious about putting our personal home in this mix, but we want to get started in this business. @Joseph Scorese Do you have any HML you prefer to work with in PA? I have taken classes, done the research but we have never done a deal before... so any advice would be truly appreciated. Thank you!
LOL.. The HML will require you to personally guarantee the transaction, which will override any LLC protection you get. Do you really think HML lenders are that naive to lend you on the property when you have NO prior experience, in your case NO capital, without you personally guaranteeing it.
You are better of finding a rich uncle.
Please remove yourself from this post. I'm asking for input, but not from you.
You can always ignore me.. The input I give can be used by many, not just you.
Contractor · Albany, GA · Member since 2017 · 57 posts · 33 votes
9y
@Chinmay J. No I have stopped looking into hard money for the very reasons mentioned. I am trying to raise more capital through a possible lease option. Otherwise, I would try a partnership for a fix and flip. Last week I was seriously considering DoHardMoney but after reading all the negative feedback on the forum, I decided against it. Like Brandon Turner has said many times, without much money you have to creative with financing.
@Chinmay J. No I have stopped looking into hard money for the very reasons mentioned. I am trying to raise more capital through a possible lease option. Otherwise, I would try a partnership for a fix and flip. Last week I was seriously considering DoHardMoney but after reading all the negative feedback on the forum, I decided against it. Like Brandon Turner has said many times, without much money you have to creative with financing.
That's a great way to go about. Hard money is great if you find a right partner. Yes, its expensive, and if you have other ways to do the deal, by all means you should do it. I am doing my first deal with HML. But he has a great reputation in the local market, and comes recommended from other successful flippers.
Investor · Orlando, FL · Member since 2017 · 80 posts · 39 votes
9y
Most hard money requires skin(cash) for first time flippers. They want to see that you have something to lose if the deal goes south.
they also will review the deal and tell you if it is beneficial to them.
check out podcast 9
https://www.biggerpockets.com/renewsblog/2013/03/14/hard-money-lending-ann-bellamy/
look at heloc, ploc, friends and family for dow payment assistance.
there is an article/blog about floating credit cards but it is very risky .
hope this search URL works.
https://www.biggerpockets.com/search/wordpress?utf8=✓&term=Using%20credit%20cards&page=1
Please excuse any abbreviations, misspellings and typos as this message was sent using my mobile device
Contractor · Albany, GA · Member since 2017 · 57 posts · 33 votes
9y
So my question would be, if you have great credit [750 or above] and can get the same loan through a bank as you could with a HML, why not just go with the bank? For example, if the HML wants 15% down and 2 points, with 14% interest only payments for 12 months and the bank would do the same note without the points and a 7.25% interest for 30 years. I know I'm missing something. Do all banks have a prepayment penalty within 6-12 months? If they don't, I don't see the reason to go hard money if the person have very good credit. Sorry admin if I'm derailing this thread.
Birdsboro, PA · Member since 2017 · 16 posts · 15 votes
9y
I know a regular bank takes such a long time to originate a loan. HML are quicker to close, which, in many cases, can be critical. Thanks for the input!
If we go through a bank, can we have the home purchased using our LLC name with us as the PG?
You won't get the same rates with and terms with an LLC as you would as "Danielle Cushman". You'll likely be looking at commercial and/or portfolio loans with 20-25% down (credit card probably won't suffice) and shorter terms of fixed interest. Generally a slightly higher rate too. You will also still be required to personally guarantee these loans as well.
If we go through a bank, can we have the home purchased using our LLC name with us as the PG?
You won't get the same rates with and terms with an LLC as you would as "Danielle Cushman". You'll likely be looking at commercial and/or portfolio loans with 20-25% down (credit card probably won't suffice) and shorter terms of fixed interest. Probably a slightly higher rate too. You will also still be required to personally guarantee these loans as well.
Thanks for the advice! Seems this LLC doesn't protect us from much, as it seems. We will just have to put some of our own skin in the game, which we are prepared to do. I am almost finished with my real estate license and have another investing course on IRS/taxes next week. We will most likely go with the HML and put our own money into this, since our LLC has no capital until we start working deals
Birdsboro, PA · Member since 2017 · 16 posts · 15 votes
9y
Thanks. You were trolling earlier, but it's all good. I'm here for advice so any is welcome. The HML obviously requested you as a PG. Do you have a LLC or are you operating as a sole proprietor?
Birdsboro, PA · Member since 2017 · 16 posts · 15 votes
9y
How does having a real estate license factor into your flips (anything besides access to the MLS and the ability to sell properties)? I see you are a realtor
Thanks. You were trolling earlier, but it's all good. I'm here for advice so any is welcome. The HML obviously requested you as a PG. Do you have a LLC or are you operating as a sole proprietor?
Maybe we got different definitions of trolling. But I talk like common man. I don't talk like I am from Royal family. I am also a straight shooter. Maybe it doesn't come across the right way in 2 dimensional medium. All good..