Buying & Selling Real Estate Discussion

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Xavier Mc holder
  • New York, NY
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Hard money lending investing

Xavier Mc holder
  • New York, NY
Posted Jun 23 2017, 06:03

A Blog on BP gave the following example:

The after repaired value (ARV) of a potential property is $200,000 and you can purchase it for $100,000 and it needs $30,000 in repair costs. In addition you have to consider the following

$6,500 in closing transaction costs (state/county transfer/recordation tax, title insurance, title work, property insurance, taxes.. etc..(~5%)

$5,200 in lender fees, (~4%)

$7,800 for lender interest payments assuming a 6 month outstanding loan (~6%)

$2,600 in holding costs like electric, gas and water. (~2%)

All of these costs come to a total of $152,100 (including your purchase and rehab costs).

  • Your costs will be about $13,000 for realtor fees (5%) and transfer taxes/title costs (1.5%).

My question is, Would the hard money lender lend the all in amount of $165,100 or would they only cover the Total purchase price and construction costs: which amount to $130,000? And do I need to have 13,000 cash reserved or can this come out of the 34,900 profit I would have? 

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Christopher Phillips
  • Real Estate Agent
  • Garden City, NY
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Christopher Phillips
  • Real Estate Agent
  • Garden City, NY
Replied Jun 23 2017, 06:47

Xavier Mc holder

Usually 74%~75% ARV which in your scenario would be 75% of $200,000 or $150,000. Remaining would be out of pocket.

They could potentially go higher to 80% or 90% ARV but that depends on your relationship with them and you would expect to pay a higher interest rate.

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Jay Hinrichs
  • Real Estate Broker
  • Lake Oswego OR Summerlin, NV
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Jay Hinrichs
  • Real Estate Broker
  • Lake Oswego OR Summerlin, NV
Replied Jun 23 2017, 06:51

starting out figure on having a nice amount of cash into the deal as you get down the line with the lender they will usually start to give you more leverage.. why its important to make good connections with HML then keep using them for years.. it just gets easier as you become more successful and they have confidence in your abilities and have repayments in the history books.

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Xavier Mc holder
  • New York, NY
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Xavier Mc holder
  • New York, NY
Replied Jun 23 2017, 07:29

@Christopher Phillips thanks for taking the time to respond. I have read various articles stating that are purchase price should be between 70-75% of the ARV so that when utilizing the BRRR strategy you are able to pull out all of your initial investment out at the time of refinancing. this article suggest 65% that is why the number was skewed to 130,000.

  • Purchase price of the property: $100,000
  • Construction cost to renovated it: $30,000

in your experience will the hard money lender lend the  amount of $165,100 to cover everything listed above ?

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Xavier Mc holder
  • New York, NY
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Xavier Mc holder
  • New York, NY
Replied Jun 23 2017, 07:43

@Jay Hinrichs Thank you for taking the time to respond, I am a new investor and seeking knowledge. I am currently attempting to figure out what strategy would be best for a new investor with little cash reserves to get started in the industry. If i were to utilize the BRRRR strategy utilizing funds from are you saying that they wouldn't cover everything listed above? from you experience if i were to seek 130,000 assuming that the lender would cover

  • Purchase price of the property: $100,000
  • Construction cost to renovated it: $30,000

how much of my personal cash should I be prepare have into the deal? As a beginner is their another strategy you would suggest?

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Mindy Jensen
  • BiggerPockets Community Manager
  • Longmont, CO
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Mindy Jensen
  • BiggerPockets Community Manager
  • Longmont, CO
Replied Jun 23 2017, 07:46

@Xavier Mc holder , no. A hard money lender is not going to lend you 100% of the purchase price plus 100% of the closing costs and 100% of the repairs.

They might lend it to @Jay Hinrichs , because he's been doing this since God was a boy. He knows what he's doing and he has a proven track record. He probably has people falling over themselves to give him money.

If you are new to investing, you're going to have to have some of your own money in the deal. Think about it from the lender's point of view.

They've ponied up 100% of everything, and suddenly you discover a Huge Problem. (In a rehab, there is ALWAYS a Huge Problem.) You have zero invested in this, and you can simply walk away, leaving the lender holding the bag. (They don't want to be holding the bag.)

But if you have $35,000 in the property, that might be too much money for you to walk away from, and you stay and figure it out.

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Christopher Phillips
  • Real Estate Agent
  • Garden City, NY
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Christopher Phillips
  • Real Estate Agent
  • Garden City, NY
Replied Jun 23 2017, 08:16

@Xavier Mc holder

It comes down to the numbers for the project, the relationship with the lender, and the experience of the borrower.

If you get a lender that will only do 75% without raising rates/terms, you have to make sure that your ARV numbers are solid, your repair estimates are solid, and you are purchasing the property at the correct discounted price.

That's not always easy. Sometimes you can pay too much for the property, go over budget on repairs, and then not get the ARV you were expecting.

You need to manage the project properly. Time costs money. Each extra month costs you more money.

You have to have backup plans for funding if things go longer than expected and have an exit plan that protects your profits.

As you get more experience, the lenders will be more willing to work with you in tricky situations.

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Rod Stanback
  • Lender
  • Philadelphia, PA
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Rod Stanback
  • Lender
  • Philadelphia, PA
Replied Jun 23 2017, 09:06

Hi Xavier Mc holder ,

To answer your question, a hard money lender would not fund 100% of the acquisition costs for you to acquire a property. Unless you have a plethora of experience or tremendous equity in a deal, it's not gonna happen. Remember, lenders are in this to make money and eliminate as much risk as possible.. However, it is standard for you to receive up to 90% of the purchase price and 100% rehab funds for a project. Rolling the closing costs into the loan and paying upon sale of the property is also an option with some lenders.

Most loans are capped at 75% ARV, which was stated by another investor on this thread. I have NEVER in my years of lending, heard about a loan at 80-90% ARV, please do not believe the hype.

If you have more questions about HML, feel free to contact me!

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Jason Hirko
  • Lender
  • San Antonio, TX
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Jason Hirko
  • Lender
  • San Antonio, TX
Replied Jun 23 2017, 09:16
Originally posted by @Christopher Phillips:

Xavier Mc holder

Usually 74%~75% ARV which in your scenario would be 75% of $200,000 or $150,000. Remaining would be out of pocket.

They could potentially go higher to 80% or 90% ARV but that depends on your relationship with them and you would expect to pay a higher interest rate.

 I'd have to say this would be highly unusual. It may happen sometimes, but not without a serious proven track record. This would essentially be a 115% loan. Ask any lender that you have seen advertising that how much they charge up front to get you a quote...

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Jay Hinrichs
  • Real Estate Broker
  • Lake Oswego OR Summerlin, NV
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Jay Hinrichs
  • Real Estate Broker
  • Lake Oswego OR Summerlin, NV
Replied Jun 23 2017, 09:23

@Mindy Jensen  ESPECIALLY in NY  were foreclosure times are measured in years.. its so bad in that state that I personally would never loan my money in that state... I would simply do the deals myself  LOL

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Xavier Mc holder
  • New York, NY
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Xavier Mc holder
  • New York, NY
Replied Jun 23 2017, 18:54

Thank you everyone, I appreciate all the feedback and knowledge everyone has bought to the thread.

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