So I've been approved for a hard money loan of 100% of the deal up to 70% ARV with 10% cash or collateral down. Terms are 12% interest and 50/50 profit split. This will be my first real estate deal so I'm not sure what to expect and I was hoping you guys could answer a few questions I have. I could easily call the lender with these questions, but I'd like to hear what you guys have to say first.
If I can find the right deal and keep all costs below the 70% ARV, will anything at all have to come out of my pocket? Like fronting rehab costs, closing costs, etc. I'm assuming so, please fill me in!
I don't have much cash now, and have a family member putting up the 10% collateral for me to help get me started. Is it realistic for me to think I can jump into this right now? What else should I be prepared for?
50/50 Profit Split , on top of the 12%?
Doesn't sound right. If you splitting the profits that sound like a equity partner and not a hard money lender.
Why are you saying that it's 100% financed if you're putting 10% down? Isn't it 90% financed?
12% interest and also a 50% profit split? And presumably he has no obligation to share in the loss if you have to sell at a loss? You have to give away something to get him to come up to 90% ARV, but in my opinion you're giving away too much.
I agree with Matt, It sounds like you are really talking about 90% financing.
I wouldn't take this deal. Instead I would put your skills to work (whatever skills you are bringing to the table as a flipper, in my case it was the actual labor portion) and save up some $. I spoke to a hard money lender in my area who is charging 3% origination, 8.5% apr. That is a 70% loan. I also know one who loans at 80%, 1% origination, 12% apr. just for comparison.
I am not a big time flipper, but I have done a few and I know you really need to watch your expenses and capital is an expense.
Yea. There are better hard money lenders out there. That being said, your experience will also play a part as well.
But in Texas, there are quite a few hard money lenders that will do 100% of the deal up to 70% of the ARV. You'll just have to pay the points and and closing costs out of pocket. But they don't take ANY of the profit. They're strictly lenders.
Do a search on rehab lenders Texas on google and you'll find them.
If you have decent credit and decent income, you should be able to find one that has the same terms but without the splitting of profits.
12% interest is OK. A 50/50 profit split is OK. Both on the same deal is outrageous. Find another lender.
If you've been approved for 100% and they want 10% down it's because they want to know you have some skin in the game. The biggest problem I see is that they are asking for 50% of the profits. How much will they be involved in the rehab work?
If it's not much then that's unreasonable. If they will play a major role in the rehab then possibly. Ultimately, they are looking to get their 12% back on their money.
Also, the financing should include all the rehab costs and closing costs as you've been approved for 100% financing and that's part of what the lender is funding.
I would suggest getting more in-depth and experienced opinions from unbiased parties on this deal before you jump in.
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