The Value of Hard Money Lending

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Check out the example on a recently funded Indianapolis flip from 8/30/2018.

Purchase Price: $60,000
Renovation: $51,900
After Repair Value: $213,000

Longhorn Investments was able to cover 100% of purchase and renovation cost. The borrower brought $6,199.55 to closing.
It cost this borrower $6,000 at closing to make a gross potential return of $65,000!!! That is an amazing return on investment.

What has been your biggest success with hard money lending?

That's great @RossMatuszak ! I think some people get intimidated by the the thought of using hard money. In the end, it's about the numbers and they don't lie. 

I'm curious what the cost of capital was for that 100% financing.  Rates / points / fees?  Are draws given up-front or on a reimbursement basis?

I have been offered 100% financing before, but it never seemed worth the extra costs.  Anyone needing 100% financing scares me a bit.  I'd rather put a little bit of money down to get significantly better terms.  Last month I closed on a flip in WA at 95% of purchase and 100% of rehab, but at 8.5% interest and 1.25pts for 9-months.  Next month I'm closing on a rehab in KY at 7.14% interest, but down payment was a bit higher to get that rate.  It's a smaller purchase price, so the down payment was pretty minimal.

Here are the terms and fees:  

12% - 14% interest only payments

3 to 5 points origination (depends on location)

Appraisal Fee: $425 – $550 (dependent upon location and independent appraiser’s fee)

Inspection Fee: $100 - $150 / inspection

Loan Documents: $475

Loan Admin Fee: $500

Credit Report Fee: $30 ($35 for Joint)

Flood Certificate Fee: $15

Monthly Servicing Fee: $15

  • A mortgagee’s title policy is required.
  • An insurance policy is required on all loans for the term of the loan.
  • Up to 70% of the After Repaired Value (excluding points & fees), not to exceed 100% of cost.
  • 6 month term
  • 3 month optional extension (extension fees may apply)

While these fees can be significant on the front end, it can save you money on the back end. Just depends on how the deal is structured.

As for the draw process, it's the investor's responsibility to pay the contractor if they require payment up front to start rehab work. If you visit Longhorn's site, they have a video on how the draw process works. Go to LonghornInvestments.com/draw-request to get the details.