Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
13y
The way some investors use terms.....no idea what you heard.
Investor financing to me is adding to capital contributions in a company to share profits and receive interest from inside the company. A HML is not in the company but makes a loan and can't share profits as a straight lender due to conflicts of interest.
Either can be secured by collateral. Down side as always, deals fail and you lose. You'll have lots of compliance issues being a lender on the outside as well.
I've heard that with investment financing the lender focus on the property for qualifying for a loan. With that no money our of pocket and hard money usually covers up to 70% of the requested amount. Investment financing would also not be subject to your personally credit but us the home value as collateral. Is this correct?
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
13y
I think you're thinking about commercial loans from a bank. When you get up into bigger properties, there's no way your personal income can support the payments. So, the lenders focus on the property itself. They look at DSCR - debt service coverage ratio. That the net operation income from the property divided by the debt payment. Lenders have various thresholds for what works for them.
But you mention "home". A "home" is someplace you live. This isn't applicable for that. Even for a single-family investment property, a lender is going to look at your personal income, credit score and cash reserves before they give you an investment loan. In that context, for an investment loan, assume the rate will be about half a point to a point higher than the OO rates you see advertised, that you will need 20% down (maybe more), that you will need a 720 plus credit score, you will need cash reserves equal to six months PITI and that you will be able to carry the loan on your current income. After you have two years experience as a landlord, banks will start letting you use the rental income as part of your income.
Hard money loans are short term. Six months or a year, perhaps a bit longer. They have very high rates and points. Figure 4 +/- points and 15% +/-. Typically interest only payments. You're expected to either sell the house or refinance if you want to keep it. Most lender now require some of your own cash into the deal. With the right lender (rarer and rarer) and a screaming deal, you might get into the deal with only a small amont of your own cash.
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
13y
Originally posted by Sydnie E.:
I've heard that with investment financing the lender focus on the property for qualifying for a loan. With that no money our of pocket and hard money usually covers up to 70% of the requested amount. Investment financing would also not be subject to your personally credit but us the home value as collateral. Is this correct?
Does the "investment lender" take an interest in the profits? Or do they just charge interest?
Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
13y
I wouldn't get caught up in the lingo. Ask what their investment requirements are (debt vs equity), their terms, their required collateral, etc. Then compare them side-by-side.
Thank you Jon for breaking that down for me. I trying to determine the fastest and best way to acquire property for flipping purposes. Here in California the mortgage company's are moving very fast.
Bill yes the investment companies would take part of the profits just as a HML.
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
13y
Being an outside lender with a collateral interest and taking profits is unethical and illegal in many areas, especially if they have management input, but what's new here?
HMLs shouldn't be doing it either.
Find a straight lender or take a partner inside the company with a capital contribution, that can earn interest as a loan to partners. :)