Hard Money Lending for First Time Investors

8 Replies

Hi Everyone,

I've been following BP now for the past six months or so but this is my first post to the forums!

I think I've found my first deal that I'm ready to put a cash offer in, my question is in regards to hard money lenders:

Do hard money lenders typically charge higher rates and more points to first time investors? If so, what is the best option to secure a reasonable deal with a hard money lender?

Any and all advice is much appreciated. Thanks in advance!

@Michael High   Welcome to BP Michael!

A quick tip, you mention "cash offer". HML is still financing (it's a loan), so you should note that in your offer.

My personal experience about points / rates - it depends.  Depends on the lender, your cash into the deal, your cash reserves, and for me a least, credit was also factored in.  You have to call around.  Good luck!

@Michael High -- yes, typically for a first time flipper (or first time buy & hold purchaser) most lenders will charge higher rates. I'm not sure if the points go up for first time investors, it may, that depends on the lender.

If it's your first deal, the best way to get more favorable terms is by not borrowing the full amount that is available to you. So if they go up to 80% LTC maybe taking 70-75% reduces your costs. Another thing is, make sure you have a decently specific/descriptive scope of work and be conservative on your as-is value and the ARV, it will help you come across as more credible.

Yes, a lot of lenders do charge higher for newer investors than experienced investors.  I've seen terms go as high as 12% and 3 pts for new flippers, and as low as 7% and 1.5 pts for the extremely experienced ones.  And these are the high-leverage ones too, only requiring 5-10% down payment.  If you're willing to put down 20-25% down, I've seen new investors get 9% and 3 pts in certain areas.

@Michael High Experience will typically be a factor when lenders look at your loan. In addition to higher rates, lenders might lower the LTV and LTC on the loan. To better position yourself, I would agree with previous posters that you should put more cash into the deal if possible. Additionally, I would make sure you find a very experienced and credible contractor to do the work. The execution risk of the deal is something that lenders look at and why experience matters - having experience shows that you are capable of managing/executing a deal.

For my first deal I found an equity partner that went in with most of the money. I handle the rehab, and we split net profit 50/50. It’s not always the best choice, and I plan to grow away from them, but it means no out of pocket holding costs like debt service, so it’s good for me.

Partners can be a great way to start. If you have a plan and are clear with what you want to do.

I really appreciate all the information and advice guys! Definitely gives me more to think about and factor in as I proceed with the deal. I'll take everyone's advice to heart and hopefully I can get the deal done!

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