HML (hard money loan) advice?

Question

Hello All,

Here is my situation. Early in 2016, I purchased my first house @ 300k in a great location in Austin, TX.

Since then I have tried to cram as much real estate knowledge as possible. I have looked at several SFH as my next option but, small multi fam homes really get my attention.

I have a good job that easily covers my mortgage and good credit. I recently went and got pre-approved at a conventional lender. It wasn't enough to cover a few of the duplex's I liked.... and the 20% down can be pretty tough for me starting out. (keep in mind most duplex's near Austin are 400-800k)

to my understanding- it seems HML is my best bet. In a perfect world- they would lend me what I need. The 'fix up' around the duplex goes smooth and I can re-finance through a conventional loan when its in good shape and lower my rate.

MY QUESTION(s):

Where should I seek a HML with a place that would accept my limited experience? is it possible? Would i be able to put 5-10% down?Could they also lend me an additional 40k to fix this thing up!?

Many thanks!

HH

Ariel Salvaro · Answer

Hi Hudson,

To reply to your questions,

1. Yes, there are definitely HMLs that would work with less experienced investors - the more important question for an HML is whether you found a really good deal that you can successfully flip within a relatively short time period (6-12 months). Some HMLs also offer education for new investors on how to find the best properties to flip, and what a lender would look at when evaluating a property vs. what an investor looks at (e.g. lenders are generally more conservative with comps, and will look at the lowest comps instead of the highest ones in order to evaluate the worst case scenario for flipping).

2. Yes, depending on your credit score, you would be able to put 5-10% down - in fact, e.g. we do up to 100% financing for our clients.

3. Yes, it's also possible to get rehab financing, e.g. your 40k to fix things up, depending on what the rehab includes - the exact list would have to be discussed with your HML, as sometimes investors upgrade properties with more advanced amenities than are necessary to flip the property, and the HML, or a more experienced REI member will know more about this than someone starting out.

Hudson Hlavaty · Answer

@Jim Keller thanks! Do you mind elaborating a little more on your last statement?

Jim Keller · Answer

Thanks for asking  and reading my words,  if you want to work with private financers, or hard money lenders, even hedge funds you need to get out and meet people.

I like the idea of printing a post card with what you need on them and a picture of yourself.  Drop it everywhere you can find a group of investors.   Sooner or later you will find your BIG MONEY PARTNER.....

jim

Jim Keller · Answer

This site is a good place to find lenders, I have.  Linked in is another good place, I have done that also.  I found one of my biggest investors on Craigslist.

My larest holding with a private lender is over $3,000,000 and I meet him at a real estate club meeting.

When it come to working with hard money or private funds you can't be a secret agent.  Everyone needs to know...... everyone!

Good luck

Jim

Jonathan Satizabal · Answer

this company was stern on the 20%

They had me give them a detailed list of the work I would be doing. With estimated prices. I estimated all the work myself. That added up to 18000. So the loan was for the purchase price plus the 18k - the 20% down payment.

In my case it was a 55k house plus 18k for rehab plus points and closing cost the loan amount is 65k

It's an interest only loan for 13months

They give you more favorable terms if you do more deals with them. In my case it worked out fine.

Hudson Hlavaty · Answer

thanks @Jonathan Satizabal --- so, you pulled from your HML via total rehab price? 5k here.. 10k here?

were they stern around the 20% down. congrats btw!

Jonathan Satizabal · Answer

recently did my first HML deal. I had to put up 20% down payment. Plus money for rebab costs. I could take draws from the escrow account as the work was completed.

The money is kind of expensive i think they charge three points, plus other small fees and 12% interest rate.

The plus side it was very easy to get the money. I closed a deal in two weeks.