Hard Money Lenders

10 Replies

How much money does a typical Hard Money Lender want you to have in the deal? For instance. Lets say a house has a $100k ARV. Purchase price is $50k and needs $15k of work. HML says they loan 65% ARV, but I don't imagine they would loan 100% of the purchase price and repairs for this situation would they?

Andrew -

The norm in my area is the HML will fund up to 70% of the purchase price and 70% of the rehab costs. So on a $65k property all in, they would expect you to have ~$20k in the game.

Make some calls around town, you'll get a feel for what terms to expect from the guys lending in your area.

@Scott S.

Well buy and large from a lenders perspective.. Your brains and our money did not go over very well in the melt down. So the thinking is hey if they are true investors if they don't have a few thousand to put into the deal then they should not be in the bizz ...

I have been in contact with a HML and they fund whatever is less; 65% of ARV or 80% of total loan. Total loan is the sum of purchase price, closing costs, rehab budget, loan fee (~5%), and 6 months interest (as I understand it). The difference between the "total loan" amount and what they fund, aka skin-in-the-game must be brought to closing to be held in escrow. Rehab funds are distributed as draws.

The above is for a fix-n-flip scenario. This could require a fairly significant amount of personal funds if your market is higher priced, such as mine in Northern Virginia.

As an alternative I plan to explore local/regional bank offerings, target lower cost markets nearby, or simply wholesale initial leads to build working capital.

It may be worth waiting until you have some cash to put towards close and rehab - it's never a good sign when your lender takes a bigger spread than you do. You may have someone in your network that can fund your down, or the full project, that you haven't realized quite yet.

There are enough lenders out there that will do business the way you do business. Continue shopping around for one that fits your business model. Sometimes ARV at a fixed 4 and 12-15% works, in the markets we're doing volume in, it doesn't.

Are there HMLs that just lend for the purchase price and I can use my own money for the rehab? I'm pretty new at this and my biggest fear is that some guy in an office 400 miles away is not going to let me draw on the rehab money as I need it. I really don't like being tied to someone elses schedule as to when I can have the money.

There are quite a few lenders who lend on the acquisition price (read: this guy), and offer draws if necessary. Check around, it's a pretty standard model as people move away from ARV, and you'll save quite a bit of money in the process if your lender considers the reduced risk.

Lenders love to see folks who are willing to fund their own rehab. Draws can be simplified, but generally, it's preferable for all parties to avoid them. Good luck

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