Up till now I've never used a HML. I'm in my 7th solo deal right now and I worked for two large real estate companies in the last 25 years. I never had to borrow money except from friends(even bosses), family and banks.
I did a commercial loan once and that was a bit easier than I thought.
So this year I'm doing a bigger deal than I've done before. It's 34+ unit mix of commercial, mixed use and small multi family. It's also in serious distress, so I am getting it at a discount. I had a few HML that I had come across before and I brought my deal to them. One of them offers 14/4. But it doesn't seem like he really wants to do it. I'm worried he will back out. The rest passed. I'm putting down more than 50% but they were worried we had never done business before and it's a big deal for me. Not my first but the biggest and it's got some ugly problems. Mostly that the tenants are the worst case scenario. Street walkers, addicts, possibly drug dealers. Definitely a high percentage of felons.
I totally understand why they passed but it's a good deal. I have a list of goals, for about 90 days these properties are on my list. Every day twice a day (sometimes more when I'm feeling down as Grant Cardone says) I read those goals.
So I was listening to a podcast and Josh Dworkin and Brandon Turner are talking about improvements to bigger pockets and they are talking about the HML listings. I'm driving home from work. In never listen to the radio. Only podcasts right now. I make a mental note I get home at about ten pm and pull up the New York local HML listings. They have two in my town, I wake up at 3am thinking about the list. I wait till 7am and start calling the list. No,no,no, I hear back. I brought up three of them to the buildings. It takes hours to walk them all. Most of the HML juts say no right of the bat. They don't like my area. The others don't like my deal, bc I'm honest I tell them what is going on. One guys tells me after half an hour, you just talked me out of it. But I finally found one guy. They just sent the term sheet 12/3 for 15 months. They will be ready to close as soon as I get title.
Thanks very much Biggerpockets
Rates have really come down with 50% down out here on the west coast that loan would be in the 1 point 8 to 9% range.
you may want to shop west coast .. like Realty shares Lendinghome etc.. they are quite competitive..
I get 1 and 8 with 20% down.. just fyi.. I don't borrow usually from those guys just a little bit most of my borrowing is from my commercial banks.. but when I am full I use them for over flow... probably worth a call ..
@Jay Hinrichs I'll look into that on the next deal, I'm hoping to close in 2 weeks. I did shop around thoroughly in the NY area. I've done a few cash deals(3) but it's usually my cash and that limits the size of the deals. That came in handy bc I was learning on the job.
Btw I want to thank you as well, I pay a lot of attention to what you say here in the forums. Appreciate that and the feedback.
NP if I was you I would get on the horn with REalty shares and get vetted in advance from them.. they are quite competitive
once vetted they can close in a matter of days as well.
Nav has done a remarkable job building that company .. I was one of his very first sponsors.. and it was right out of the show Silicon Valley.. they had an incubator space in Mt. View I went to visit.. real eye opener all these kids and their inventions..
My advice for you is this: Don't be stubborn or turn away a nice offer just to save a couple of $ or %. Remember: This is short-term money so a few % here or there comes out in the wash and won't make too much difference at the end of the deal.
If you think you've found solid lending partners that you can work with, who seem honest, trustworthy, reliable, professional and efficient, take the deal - even if it's a wee bit more expensive. Quality lenders are worth paying a little more for.
Not to sound like a noob, but what is 14/4 and 12/3? Percentage and points?
Brooklyn R. I agree. I figured I could do better but I hit it off with the HML. He's a great guy. Lives in my neighborhood kids goto the same camp. Not only that but he's the first guy that looked at the deal and said ok sounds good. I did have a few guys get in touch after that said we can do it but once I had that connection I didn't even bother doing the paperwork. Thanks for the input!
I'm with @Jay Hinrichs on the price of the money but I also don't plan on being in the loan for more than 6 months so that cuts the interest costs in half. Actually as soon as I close I'm starting the paperwork and waiting for the six month mark.
@Greg Hamer you nailed it. It wasn't that long ago I didn't know what 12/3 meant so I should have said 12% interests/ 3 Points.
so for a 100K HML with a 10/1 it would come out to 10K interest/year with $1000 origination fee? are they generally interest only, or do some HML's go full amortized?
@Greg Hamer interest only.
@Account Closed Congratulations! It's hard and there are a ton out there with their own specifications on properties. Once you find the one that works well with you and that you know will listen openly and consider it, it's someone you will want to keep working with. It helps that you had the capital and knew what you were looking for. One of the traps many people fall into on their first HML deal is not doing due diligence, researching the options, and knowing how rates and terms affect the individual deal.
Great job and good luck on your investment.
@Jesse Goldberg the funny thing is I started looking at HML last year even though I didn't need one. I thought "one day soon I'll run out of cash and I'll need to be ready". So I found one and thought they were great. They looked at my deal and after ten days told me they weren't interested in the location and the occupancy.
What killed me about losing the ten days was they knew the location months before from the first conversation. My fault tho.
The deal didn't die and I knew it was my own fault for not doing as you said. Due Diligence. Looking back I should have sent them the deals I did in cash too see if they would fund them.
Thanks for all the attention guys. I closed today. The appraisal came in at 1.6m so that helped me.
3 points up front 12% interest 6 months minimum. This was a hairy deal to close. Violations, vacant spaces, unlawful occupancies, no leases, no documentation bc cash tenants you name it I had it. Plus when the lender came one of my tenants was trying to make a buck in the hallway. Getting ready to clean that up. But anyway again thanks for the input.
@Michael Haberman was my HM lender. Thanks for bringing the money. I spoke with about 15 guys that wouldn't lend on this deal with 50% down in Newburgh, NY. The numbers worked but they were scared off anyway. That's doesn't sound so good but we're closed now I think.
don't worry I'm good for it.
Congrats to you @Account Closed . Happy to help.
Very Nice John.. Congrats buddy!!!