Pittsburgh, PA · Member since 2010 · 87 posts · 14 votes
I will have between 80-90K available and hope to buy houses under 40K here in W PA that have moderate repairs needed. I don't wish to fund it all. My only experience with rehab and hard money was 4 years ago and lets' just say it was a painful learning experience; bad choice of home, bad tenant, etc.
I would "flip" the home to a owner occupied. Are lenders going to want to see a success track record or is it still the deal that enables the loan?
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
15y
I've never seen a HML charge 10 points, but I guess its not impossible. Around here, four points and 15% is about the norm for a 70% of ARV deal. How much of your own cash is needed depends on the deal. I know one company here that will do 90% of purchase plus 90% of rehab as long as the total loan is under 75% of ARV. Two points and 11%. The companies I know are just local, though.
Lender · Tyngsboro, MA · Member since 2009 · 3k+ posts · 2k+ votes
15y
Philip, Jon is right when he emphasizes local lenders. In my discussions with lenders around the US, I find that rates vary by location, as do customs and practices. Local laws will also dictate some of these differences.
Don't assume 10 points. I do know a hard money guy who charges 18% interest and 10 points, but he does the deals that most hard money people won't. Which is to say that he takes on the riskiest projects.
Factors that influence your ability to get a hard money loan include the following, not in any particular order:
1. Your experience level, not just with the construction, but with the ability to acquire at the right price, evaluate the end selling price and to price it to sell quickly.
2. The LTV relative to after repaired value
3. The amount of skin in the game (this can be cash or cross collateralization)
4. The location of the property
5. And sad, but sometimes true: The degree to which the lender would like to own the property if you default.
This last point is not always the case, but you should be aware of it. Most lenders do not "loan to own" but some do, and some deals by their nature attract that sort of lending.
Ask around at your local REIA and ask other investors in your area. You will find the people who have good reputations and who conduct business in an ethical and transparent manner. Always ask about "back end fees" because some lenders will tack on fees and points due at payoff, and you don't find out about them until you are sitting at the closing table.
If a lender is not clear about costs and fees upfront, find someone else.
For your first deal you will find yourself paying more for your inexperience, but over time you will find more lenders and will have more negotiating power. But don't be so fee-conscious that you ignore the relationship. More and more, hard money and private lenders are valuing the relationship with their borrowers who deliver, and you should value the relationship with the lenders you can depend on.
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
15y
Yes a nationwide HML will usually be much higher as they are building the risk out.
The local HML has a more intimate knowledge of the area,the laws,etc. so can cover risk and chance of default better on the loan.
10 points is outrageous.I looked at rehabbing but I am not that hot on it because of the long hold times involved to an end buyer and all the residential BS red tape the government has enacted.
The points aren't as bad if the interest rate is really low.If both are high there are too many HML's to pay those ridiculous rates.
Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
15y
With 80K to 90K available, you 1) don't need a HML for the first deal, although I do respect why you would want to use one 2) can use a low LTV (e.g. 50%) to hopefully avoid grotesque terms, 3) can afford to buy with cash (hopefully at a lower price and higher margins) and possibly fund repairs through a local commercial bank (maybe even private lenders) at very reasonable rates and terms.
