Hard Money Lender- Ask Me Anything

18 Replies

Hello All, 

My name is Sean Molloy, I am a Production Manager for WDB Funding, a nationwide hard money lender. Ask me anything about hard money lending and I will do my best to answer! The purpose of this discussion will be to hold an open discourse about hard money, and provide the Bigger Pockets community an  inside look as to how a REAL hard money lender analyzes, underwrites and packages a loan file. So go ahead, ask me anything!!

Thanks,

Sean

Is there a pre-approval process?  I want to find my first property to flip, but am afraid that once I find a property, the funding won't be there.  I understand that the deal is based on the lender analyzing the property, but how can I be sure that there will be money for me for the deal to go through and how do I know what numbers to run (i.e. points, interest rates) to see if the deal makes sense for me?

Thanks!

Sean, Welcome to BP and good luck with your deals!

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Jesse,

After a refresher on a Bigger Pockets advertising policies, here is my updated response:

You should approach a hard money lender and ask that they qualify and approve you as a borrower first and then as your targeted properties become available, you should bring them to the lender to be subjected to their collateral underwriting and approval process. As far as your deal modeling, a lender should be able to provide you with general loan terms and rates based upon the nature of the project to use as placeholders until their final terms are offered.

I hope this helps!

Sean

Hey Sean,

Hopefully you are open to trust deed lending questions from an interested newbie. Any thoughts on the best steps to take to get more familiar with the private lending process? I would actually like to start doing some private lending but only have about 30k right now to work with. Any good books, websites, videos you could point me to would be much appreciated. I look forward to your response.

Take care

Eric

What type of deals do you prefer to see on your table? Single family rehabs?, multiplexes?, apartment buildings etc? @sean 

@Sean Molloy  undefined

Sean-

Thanks for posting this.  I have tons of questions!  Can you let us know what types of properties you lend on and the more or less standard terms?

@Ricardo Sandro -

You may hear the term 'strike zone' being used by some hard money lenders. A strike zone deal can most easily be defined as a deal in which the collateral type is that which the lender is most familiar and comfortable with. Lenders may not only have collateral types that they favor, but locations, loan amounts and specific borrower qualifiers that they prefer. Speaking as a hard money lender, I can tell you that the majority of deals that I see usually do no fit exactly into our "strike zone" box, but that is where the actual work for us comes in with a borrower. Work in close communication with your lender, providing the necessary information to them to show how your deal ultimately makes business sense for everyone involved. Ask whatever lender you are dealing with what their dream deal would look like, more than likely they tell you! Demonstrating and emphasizing the common sense nature of your loan goes a long way when lenders are analyzing a deal that may be slightly outside of their comfort zone.

Thanks,

Sean

 @Eric Yeoman:
Eric,

I would suggest talking to you as many people as you can who are active in the local market. Check out sites like meetup.com for local real estate investors meetings, as well as local real estate investment clubs, try to get a feel for what people's funding needs are your immediate area and go from there.

Thanks,

Sean
 @Ricardo Sandro:

Ricardo,

You may hear the term 'strike zone' being used by some hard money lenders. A strike zone deal can most easily be defined as a deal in which the collateral type is that which the lender is most familiar and comfortable with. Lenders may not only have collateral types that they favor, but locations, loan amounts and specific borrower qualifiers that they prefer. Speaking as a hard money lender, I can tell you that the majority of deals that I see usually do no fit exactly into our "strike zone" box, but that is where the actual work for us comes in with a borrower. Work in close communication with your lender, providing the necessary information to them to show how your deal ultimately makes business sense for everyone involved. Ask whatever lender you are dealing with what their dream deal would look like, more than likely they tell you! Demonstrating and emphasizing the common sense nature of your loan goes a long way when lenders are analyzing a deal that may be slightly outside of their comfort zone.

Thanks,

Sean

Sean,

After doing tons of research I have decided to purchase my first investment property with in 3 months. I currently work as an REO Asset manager for one of the largest banks, however, due to layoffs my assignment is ending on 09/17. I have about $17k cash ready to contribute but will probably use only $8-10k depending. So I guess my question is: how will this impact me with financing and will hard money lenders require a buisness plan.

 @Rashad Carrizales:

 Rashad,

While a lender most likely will not require you to submit a full business plan, they will definitely want to know your exit strategy for paying them off when their potential loan matures. Since most hard money loans are short term and interest only, it is vital to have a sound plan for what you intend to due when the full loan balance comes due. A lender might take issue if your exit strategy is to refinance conventionally, as it may be hard to qualify for a conventional loan if you are not currently employed. However, if it is your plan is to buy, improve and sell the property a lender might not take issue with your employment status if the numbers are substantiated and make sense. I hope this helps!

Thanks,

Sean

Thank you so much Sean. This helps.

What are your basic qualifications for approving a borrower? I'm interested in doing a fix and flip but have no idea what financial qualifications I would need to have in order to be approved.

@Sean Molloy  I have never used hard money before but I am considering it under the right circumstances. What do you think of these hard money terms below. Are they typical or on the more expensive end? With no hard money experience, some of the fees feel like junk fees to me. 

Origination Fee 3% of loan amount

Interest Rate 12.99 %

Application / Appraisal Fee $995 ($495 is for appraisal, $500 application at closing)

Max LTV 80% of acquisition and rehab or 65% of ARV (at lender's discretion)

3rd Party Rehab Inspection $295 (analysis of construction budget and scope of work)

3rd Party Inspection Fee for draws $115 (inspection fee for each draw)

Minimum Interest 90 days

Loan Term 9 months

Max Loan $100K

Min Loan $50K

What are your thoughts?

@Daren H.  The fees seem a little high, but that could be due to the relatively low loan amount. The lender and Investor have to make a profit so on the low principal loans they might be trying to make that up on the fees.  Our typical loan amounts in the SF Bay are around 500k+ so fees like that are not the "norm" here. I would say if the fees, rehab costs and property cost subtracted from the resale price still show a profit relative to the risk involved... then it might be a project worth doing.

@Eric Yeoman  I agree with @Sean Molloy  and networking is key. 

Also you might want to consider partnering with an experienced house flipper you trust and fractionally invest in one of their projects to grow you nest egg.

Example:

Flipper buys property in Pleasant Hill, CA for $500,000 with a 30% down hard money loan. Lets say rehab cost is $100,000. So thats a total out of pocket for the investor of $250,000. So you Invest $83,000 making you a 1/3 interest in the investment. Lets say it sells for $750,000, that leaves a profit of around $110,000 / 3 = $37,000.

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