Hard money loan to the agent?

15 Replies

Hi BP members! Good morning!  

I have an real estate agent who wants hard money loan from me for flipping an income unit. The investor is putting down 25% of the purchase price, and extra 20% in renovation. I'll be loaning 80% of the purchase price and I'll get is 10% interest for about 6~8 months. Is it relatively safe? Is there anything that I should be aware of and be cautious of? Thank you so much for your comments in advance! 

80% purchase price for 10% interest???? I would run.

what about the appraisal,  origination fees, attorney fees,   ask him to put 30 to 35% if this is the first time you are working with him,  did you see the property?  

Why would you run? @JingJing He

You want an annualized interest rate of 10% or want 10% on your money in 6 months?

What is the ARV? If the investor/Realtor is flipping it, what are they expecting it to sell for to the end Buyer?

You have to know the deal before you can make an informed decision.

Otherwise, if you are coming in with 80% LTC (loan to cost/purchase price) and the Realtor/investor is coming up with 20-25% PLUS another 20% for the rehab, then the Realtor/investor is coming in with skin in the game too.  So, in that regard, it could be a potentially good deal at 10% interest for a short term loan.  

You have to know the deal first....not just the numbers on paper. Ask the agent for the ARV figures and comps that support the ARV number.

You can't make this decision without knowing all the costs, the experience of the realtor, and being comfortable with the ARV.

If you are not very confident in the costs, the experience of the realtor, or figuring out what ARV is you should not be in this type of investing.

Hi Cara ARV will be around 160% and comparables are good
Please let me know Thanks!

@Colin Lee

I would say so. Will your name be on the title? How do you cover your grounds to protect your money?
What’s your relationship with the realtor?

@JingJing He Yes and ARV should be at least 135% so I have room if they default. But just in case they default , how hard is to get the property in my possession? Thanks!

The investor is putting down 25% of purchase and 20% of renovation, and you are loaning 80% of purchase price price. These numbers don't add up.... where is the rest of the renovation money coming from? 80% + 25% is 105%, so what are the numbers? So many things make me think this is not the right deal for you.

@Jason DiClemente 20% renovation cost is what investor is brining in additionally . So the investor is putting down about 45% (25% downpayment + 20% additional in reno) and Im loaning 75% of the purchase. So if they default, I get the property for 75% of the purchase price plus the money that investor put in for renovation of the property. 

@Colin Lee I see. You said you were financing 80% in your initial post. Have you seen the scope of work? Is he using a contractor and, if so, have you seen the bid for work? Is there a reno contingency in that budget? If there isn't enough in the reno budget, does he have enough reserves to cover? Are you going to be in 1st position lien? These are all questions that you should have answers to before moving forward. If you have answers, and they are satisfactory to you, and you trust his analysis and exit strategy, its a solid return for your money.

@Jason DiClemente Hi Jason Yes i worked w the agent before and he did my flipping and turned out great. I just never been on the lender side so wanted to see what kind of points that I should be looking at. Yes he just confirmed that I will be in the title as the 1st lien. So i guess that's good? :) Thanks! 

@JingJing He . i dont think you understand how hard money works. while the deal may not be right, for 80% of cost of loan is pretty standard. the rest of the details are in the legal end which doesnt have anything to do with the deal it self and with being protected, asuming the lender isnt lending more than 70%Arv.
@Colin Lee just remember that it's your money so you call the shots. Typical short term lenders will charge 2-4 points but that is completely your call. If you believe that it's a lower risk deal and there is a chance that you would do this again for him, you could have more attractive fees.

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