Am I calculating this right? (HML)

[Account Closed]

Hello-

New to REI and I was trying to figure out a HML that was listed on another thread. Was hoping someone could confirm I did the numbers right.

Terms:

70% of the after repaired value
14% for 6 months
6pts
Cost, payments, fix up all wrapped up into loan.
Property ARV = $200,000

My Calculations:

Loan amount = $140,000
(140,000 x .14) / 12 = $1,633 monthly payment

6 months down = $9,798
6 points = $8,400
$18,198 deducted from loan

140,000 - 18,198 = $121,802 actual loan

So this means that the purchase price + cost of repairs would have to actually be $121,802 to not have to put any money in?

Just trying to understand.

Thanks in advance,

Andrew

[Jon Holdman]

If you want to do fix and flips you need cash. End of story. Five years ago you might have been able to do this with none of your own cash because prices were rising so fast the HML was likely to come out OK. That is most assuredly not the case. A hard money loan I made in late 2009 defaulted in mid 2010. I finished fixing the place and sold it. What should have been a $20K profit became a $1K loss. And the cash was tied up 15 months.

If your purchase price plus the rehab costs is 70% of the eventually selling price (I'll call that ARV), you use hard money and hold for six months, you'll make a profit of about 15% of ARV if everything goes perfectly. Since things rarely go perfectly, 10% is more reasonable.

If your lender will give you the full 70%, you will need about 15% of ARV of your own cash to cover points, up front costs, interest payments, holding costs, and to be able to pay contractors while waiting to be reimbursed by the lender. You'll get that back, along with your profit when you sell.

If the lender wants you to put in, say, 20% of purchase and 20% of rehab, then you will need that in addition to the 15%.

Fix and flipping is not really feasible unless you have a pretty good starting bankroll.