Need Hard Money Loan Fort Worth Explained

11 Replies

Hello All,

My wife and I are looking to begin our first flip experience. Please let us tell you guys our situation and then any advice on how to proceed is greatly welcomed.

Our situation is as follows:

Looking to buy Single fam,  2bth 2 bed in the Mansfield TX Arlington area. We work self employed with sporadic income so conventional banks are a no no. A hard money lender is our most viable option. 

  • We have 10 - 13K in savings to put towards the project. 
  • Credit score of around 685 - 700
  • Reno ourselves, somewhat experienced

we really want to buy something in good condition so that only cosmetic changes are needed, for which we'll do ourselves e.g; painting, carpet, floors, tiling, kitchen, yard. No electrical or major foundation/roofing exp or know how. 

Hope to be in and out in 5-6 weeks max.

So here's a scenario of what we kind of hope to expect:  

HML may offer us 70%ARV, 12%, 4pts

So with the above terms in play we have a question: 

If a property that has a $100,000 ARV and the HML offers us a loan of 70% of ARV =($70k) 

..If we buy the 100K ARV property for less than the 70%, say around $60K, can we put the extra $10k that was available from the HML towards the reno? Thereby using our reserve of personal money for the unexpected, on closing and added cash for the holding costs/reno if necessary.

Basically, do HML's give a set amount of funds of entire ARV estimates regardless. Meaning we can use a portion of their money to renovate because we get the property for less than 70%

Thanks.

They will pay out in draws. 

They send some money, you complete more of the project then they send some more etc.

@Sheri H. , welcome to BP. It is possible to find what you are looking for but you may have to search hard and make a lot of inquiries. The fact that this is going to be your first investment will be a big negative but the fact that you have some cash to put into the deal will help. You will need to find a deal that is clearly being purchased significantly under market. It will be harder to buy a property significantly under market price if it needs only cosmetic repairs but it can be done. Even then, many HMLs will base their loan on a percentage of the purchase price. There may be someone who will recognize that you are buying under market and will increase their loan amount because of that. Your best bet may be private lenders, people you know, friends or family, who are more willing to take a chance on you.

@James Wise, cheers so I suppose they wil, but I've read they often charge $100 per draw.

@Jeff, Thanks yes, definitely hope the HML's offer loans on the ARV rather than cost at purchase. I completely agree; the low cost rehab has little room to move between buy/sell price. Of course we can find contractors in the know for renovations we can't handle, but that's why we want to do it ourselves. Learn as we go and keep it simple. The fact we can do the work ourselves and keep it cosmetic should please the HML, less risk on their end, yet should still yield the same rewards. Down side is less profit our end, but at least it'll grant us much needed experience of the whole process. Once we have a couple of goes around the block we'll have credibility and make more profits..

The problem you will find in the DFW area is you will have an incredibly hard time finding deals(if at all) at 70%(or below) ARV. Most deals are gonna be around 80% ARV with repairs factored in. That will bump your out of pocket up considerably. I was looking at property's with HML's and the minimum out of pocket I could find looking at properties between $100-140k was approx. $20,000.

That was about 3-4 months ago, so maybe the market has changed but I doubt it has changed that much.

The Mansfield market is so hot that MLS listings are selling in hours.

@Sheri H. welcome to BP. You can defiantly find deals at 70% or below, people do it everyday in DFW. The problem is there is basically no chance you will find those on the MLS. So, your only option is direct mail or bandit signs. And, you'll have to check with your city but chances are bandit signs are illegal where you are. The benefit of direct mail will allow you to target the exact type of seller you are looking for. With only 10K-13K to invest you might look at doing some direct mail and then wholesaling some properties to grow your funds. Turn that 10K-13K into 25K-30K and you will defiantly have more room to work with in terms of HML and flipping.

@Sheri H.

Short answer is yes you can put funds towards repairs. Considering this is a new venture the HML may want you to have more skin in the game.

It might be good to work on per-approvals from multiple HMLs. You'll see quickly where you need to shore up resources. Also work on the transition to conventional. Speak to the HML so you understand where they fit in the refi. Some HMLs don't work with any banks so your left to find a conventional on your own.

In essence, you are right that if they loan you 70% and get the house at 60%, you will have to bring less to the table.  Here's what your deal might look like, and what you'll need to have - in cash - over the life of the project:

In this example, using a local D/FW HML, you'll need to come to closing with $12,539 and around $31,839 TOTAL CASH to do the deal.

The way the draw usually works is you incur the rehab expense, and then they reimburse you with the draw. They don't just send you checks in the mail. I'm no expert in HML but I've used it and I know guys/companies that do it. Hope this helps.

"Hard money is for people that don't need it." - Hard Money Lender friend of mine

Thanks so much. We spoke to HML today and we'll speak with a couple more tomorrow.

They are willing to take points/closing as down payment and say that'll be 6% of total loan.(70k) Didn't realize it'll be as much as 6% though..

We like these terms I suppose, although the one money lender we spoke with said they only lend on 6mth contracts with no pre-payment penalty. (Not sure what qualifies as a penalty; sold under 30-60days? Typically how much is prepay penalty?)

That means double the interest% rate right? Hence 13% on 70k over 6 months rather than 12 months. That's a bit pricey considering we have to pay about 1k in admin/appraisal then closing. Then we have to show we have 6 months interest payments available. Sounds like we can do it but will need around 15k investment.

Thanks for the support.

Sheri, is pairing up with your contractor that has capital for the rehab an option? It would eventually crash out the rehab costs in the figures. Just a thought, I am new to this also.

@Manolo,

Luckily we are essentially the contractors for our first flip. We'll do all the main rehab work which will mean our 10k budget should stretch a little further..

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