Hardmoney lenders are they worth it?

Question

Jay Hinrichs · Answer

ya know I would have agreed with this pre 08  but these days most HML want good credit  and proof of cash reserves and cash down.. for inexperienced first time type buyers they may not even do one.. unless you have massive down and cash backing you up.. it gets very easy when your have a nice track record.. but most HML are not little down crappy credit no provable income.

Ryan Blake · Answer

@Chanel W. Hard money is best for people in specific situations.

1)Bad credit

2)No source of W-2 income

3)Little to no money to put a 20%-25% down payment on an investment property

If any of these are true, then HML may be the best way to go. Rates are different depending on your location and I am not sure what you are seeing in Delaware but here in Texas we see 12-14% APR and 2 - 4 points due at closing. Fees will run anywhere from $600 - $1,000.

If you add the interest and fees just as part of your cost and it still looks like a good deal, then do it. It is better to do a deal than skip one just because the dollar amount for financing is high.

Good luck in your search and know that if the numbers make sense, you have made the right choice.

Bob Green · Answer

Chanel,

Hard money is good for short term situations. Additionally hard money allows for higher leverage than other lending sources. For example 10% down payment is very normal and setting up a rehab escrow for 95% of rehab costs is typical as well.  The downside is rate and fees are higher but if used for short term it is a great options. My suggestion is to always have an exit strategy in place. For example, before you acquire property make sure you are able to refinance and rent it out in the event you are having difficulty selling. When it comes to flips I only buy in areas where the arket time to sell is 60 days or less.

Jay Hinrichs · Answer

you can I have a flip line that is 6.5 % on drawn funds and a 1 point annual fee.. do as many deals with that 1 million line I can a year..

but some years I never touch it like this year.. just sat there.. so I paid 10k for nothing.. LOL  well not for nothing they are going to roll it into 3 new construction loans in PDX and not charge any points.. so its 6.5% on drawn funds no points.. But I can tell you those loans at least in Oregon are VERY hard to get.. VERY... that's why hard money totally dominates the lending landscape in fix and flip in our market. or cash.

Jay Hinrichs · Answer

I think the over riding fact in todays HML  well not fact but thing of most importance to these lenders is experience..

they all want you to send them the last 5 huds you did or the 20 flips you did last year..  that's what one needs for best pricing and if you have that.. pricing can get down to 1 and 8 these days..  but if you are starting out its going to be 4 and 14  4 nd 12 that kind of thing until you get some projects in your experience bucket.  Lending home Is cool u just give them your vesting's and they pull public records nationwide to verify you actually bought and owned it in that entity.. very easy really.. and I always suggest folks . Pop on to their website they have a very clearly defined pricing matrix that is all based on experience and deals done.

Account Closed · Answer

I tend to agree with the others.  Timing is sometimes the most important factor when using a HML.  While I don't like to, I have the ability to do a deal in a matter of days.  Banks can't do that, and it can be the difference between winning a losing a deal.

John Blackman · Answer

Regular banks also take about 30 days to underwrite a loan.  A good HML can make a decision in a week or even less sometimes.  As everyone before me has said, have an exit strategy and a plan B, and a plan C.  You don't want to lose your equity if something goes wrong.

Ryan Blake · Answer

@Jay Hinrichs So true. You can get much better rates the more secure (experience) you are. If you have access to conventional financing and have the down payment and rehab in cash, you will save a lot of money but you won’t have as much leverage. It is all a trade off. And once you have a proven track record, you may be able to work with a local bank to get a business LOC or some other type of loan to fund your projects at even better rates than 8%.

Ryan Blake · Answer

@Jay Hinrichs Very true. Not all HMLs are created equal.

@Chanel W. Check them out and search for the one that will accomidate your needs if you choose to go that route.

Hardmoney lenders are they worth it?

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