hard money lending inquiry

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hard money lending inquiry

Appraiser · Leitchfield, KY · Member since 2018 · 54 posts · 42 votes

considering using a hard money lender for my first flip. any advice on what are good terms to look for? bad terms to watch out for?

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Tim Johnson

Lender · Grand Rapids, MI · Member since 2018 · 703 posts · 446 votes

Don't pay any up front fees, no money out of pocket till closing. Some good ones charge for an appraisal, but don't pay more than $600 for a Single family

Terms are between 10% and 15% plus 2-5 points.

Happy shopping

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Tim Johnson
Lender · Grand Rapids, MI · Member since 2018 · 703 posts · 446 votes
7y
Don't pay any up front fees, no money out of pocket till closing. Some good ones charge for an appraisal, but don't pay more than $600 for a Single family
Terms are between 10% and 15% plus 2-5 points.
Happy shopping
5 Reply
Bob Woelfel
Investor/Agent · Kansas City, MO · Member since 2017 · 291 posts · 308 votes
7y
@Tim Johnson is spot on. We charge a nominal application fee for background/credit. The client pays for the appraisal which determines the ARV for our lending purposes. You shouldn't spend any other money up front or until closing. You will probably pay more if it's your first flip, but over time and deals those rates/terms should come down. Good luck.
3 Reply
Mike ZinsPro Member
Lender · Gilbert, AZ · Member since 2018 · 48 posts · 21 votes
7y
@Jacob D Cockerell I would also make sure up front you know and understand any minimum interest requirements the lender has, as well as find out if they have a prepayment penalty. Depending on the time frame of your flip, this could help determine if that particular loan and lender will be a good fit or not.
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Jacob D Cockerell
OP
Appraiser · Leitchfield, KY · Member since 2018 · 54 posts · 42 votes
7y
@Tim Johnson
thanks
0 Reply
Justin Kane
Specialist · San Antonio, TX · Member since 2015 · 909 posts · 297 votes
7y
there are no standards but you CAN find 7-9% interest 12 month term 1.5-2pts on back end, 75% arv 90% purchase, but just as important you will want to know if they charge interest on unpulled funds and their process for payout and prices for inspection etc.
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Stephen CacedaBusiness Member
Lender · 33014 · Member since 2018 · 29 posts · 7 votes
7y
All of the terms mentioned above seem spot on. Experience is a huge indicator for the lender to determine your rate and up front points.
For example my bank offers the following:
Rate : 8%-9.99%
Points: 1%-2.5%
LTV: up to 90% of purchase with 100% of rehab.
It worth shopping around to see based on your experience and Fico ( assuming its needed for the program you are applying) what different lenders can offer.
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Brian G.
Rental Property Investor · Los Angeles, CA · Member since 2013 · 1k+ posts · 1k+ votes
7y
@Nicolas Beaujean and @Bob Woelfel does it make the most sense to work with a HML that is local to the area in which the project takes place or is that a non-factor? Thanks!
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Nicolas BeaujeanPro Member
Boston, MA · Member since 2019 · 75 posts · 9 votes
7y
@Brian G. To be honest it really doesn't matter from our side of the table as long as we can lend there legally. It's a pretty small community so if it's something we can't do we know someone personally who can that we would treat as our own. The only time I would say location really matters is if it's an extreme rehab, ground up development or a massive project but again if it's something like that we usually fly out and check it out ourselves and help investors along the way to make sure they succeed :)
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Brian G.
Rental Property Investor · Los Angeles, CA · Member since 2013 · 1k+ posts · 1k+ votes
7y
@Nicolas Beaujean gonna pm you.
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Dante Foreman
Investor · Owensboro Ky · Member since 2018 · 183 posts · 68 votes
7y
@Jacob cockerell I'm close by that area Im in Henderson also looking to working with a HML. I've had better luck with out of state investors oppose to ones here in our own state. Good luck my fellow kentuckian. @Nicholas Beaujean did you say you knew someone close to our area,and are they willing to work with first time investors
1 Reply
Bob Woelfel
Investor/Agent · Kansas City, MO · Member since 2017 · 291 posts · 308 votes
7y
@Brian G. I have always recommended people to try and work with someone local, particularly if you are knew and here is why. It's someone you can meet, shake hands with, build a relationship with and who has a reputation to protect. Now I know that doesn't mean as much to people today as it did years ago, but there are a lot of stories out there about investors who sit down at the closing table and the rates and terms from their lender are not what they had thought they were. Then what do you do? Do you pick up the phone and call someone on the other side of the country?
I personally think our company brings a lot of value to the table for investors we work with. We have processes in place to protect investors in dealing with contractors and we are a second set of eyes on the deal. We want you to succeed and make money so you can continue to do deals in the future. We are visible in our markets and have a reputation to protect. Our money is not always the cheapest, but newer investors should care more about learning on the job and growing as opposed to saving 1-2% on a deal. that knowledge base is going to benefit you significantly more than the little extra cash in your pocket. Just my 2 cents. Good luck.
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Brian G.
Rental Property Investor · Los Angeles, CA · Member since 2013 · 1k+ posts · 1k+ votes
7y
@Bob Woelfel thanks for the advice. What about when utilizing a HML for a project that is not local to where I am? For example a project 5 hours away from me or possibly in another state? Just need to get caught up to speed on this piece of the puzzle. I do like the added layer of safety in having another experienced person vet a deal and control the draws on the rehab schedule. These 2 add so much value to the process especially for newbies. Talked to a guy recently that invests OOS using the BRRRR method that chooses to use HM instead of using his own capital for those reasons and so he has dry powder (ie flexibility) just in case. Interesting perspective.
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Nicolas BeaujeanPro Member
Boston, MA · Member since 2019 · 75 posts · 9 votes
7y
@Dante Foreman We actually cover Kentucky more times than not and we look at each deal individually, track record is important but if you have a great deal then of course we'll lend on it. Feel free to reach out with any questions
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Bob Woelfel
Investor/Agent · Kansas City, MO · Member since 2017 · 291 posts · 308 votes
7y
@Brian G. if that is the situation then it's going to be more of a personal preference for you to decide. Do you have a good team on the ground where the property is that you trust and you know your numbers are accurate? Then you may not need another set of eyes. The reality is that managing rehabs can be hard, especially if you can't drive to the site on a regular basis. Contractors aren't always good and aren't always honest. A local lender will actually visit the property when you make a draw request and they will verify the work the contractor says they got done is actually done. It's really up to you and your personal situation.
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Bob Woelfel
Investor/Agent · Kansas City, MO · Member since 2017 · 291 posts · 308 votes
7y
@Brian G.....Richard Philips just made my point for me.
@Account Closed...yes please wire funds immediately. Thank you.
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Nicolas BeaujeanPro Member
Boston, MA · Member since 2019 · 75 posts · 9 votes
7y
@Brian G. Awesome look forward to it! Edit- You're from CA- even easier!
@Jacob D Cockerell These guys are spot on. I'd look out for people who are charging 13%+ or 3+ points. There's some nasty lenders out there but not many. Feel free to PM me with any questions. We're Boston based but travel nationwide to meet borrowers.
Cheers,
NDB
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
7y
Originally posted by @Nicolas Beaujean:

@Brian G. To be honest it really doesn't matter from our side of the table as long as we can lend there legally. It's a pretty small community so if it's something we can't do we know someone personally who can that we would treat as our own. The only time I would say location really matters is if it's an extreme rehab, ground up development or a massive project but again if it's something like that we usually fly out and check it out ourselves and help investors along the way to make sure they succeed :)
if your in California there is ZERO reasons to go anywhere else for HML the rates in CA are the best in the country. bar NONE>
also there are very few if any lenders that are nationwide they may say they are but they dont have the licenses.. Like in CA you need to be NMLS licensed and state licensed or a CA real Estate broker or have a CA consumer finance license.. so anyone offer loans in CA that does not have those licenses prominently displayed on their websites is not licensed to lend there. Plus no east coast especially upper east coast lender can touch CA rates.. REASON.. lending in the NE is much more risky with the foreclosure time lines therefore their rates are higher. Which I totally get and would do the same thing. Same with Oregon and NV you need NMLS license and state license for any loans that are 1 to 4 units regardless if they are commercial purpose.. many out of area lenders learn this the hard way when the state gives a cease and desist and the borrower just pays back the principal since the loan was made illegally
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Nicolas BeaujeanPro Member
Boston, MA · Member since 2019 · 75 posts · 9 votes
7y
@Jay Hinrichs
Those are some great points and have some validity for NE rates being higher however I will respectfully disagree with you. As a firm, being licensed in key states is important to sustainability of business and in some cases we outsource loans in states we can't touch. CA is not one of these states as we hold all applicable licenses. Certain states require brick and mortar->some are serviced, some are outsourced.
Don't forget as a lender you lend based on risk, the exact same deal in CA vs. say CT is going to have different rates. This means that whatever risk analysis west coast lenders use, we use as well and usually win because we have the lowest default rate out of all lenders our size.
Deal for deal, state for state, all deals have the same analysis and therefore similar rates +/- 1%-> It just matters who the borrower is more comfortable with :) @Jacob D Cockerell
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
7y
Originally posted by @Nicolas Beaujean:

@Jay Hinrichs
Those are some great points and have some validity for NE rates being higher however I will respectfully disagree with you. As a firm, being licensed in key states is important to sustainability of business and in some cases we outsource loans in states we can't touch. CA is not one of these states as we hold all applicable licenses. Certain states require brick and mortar->some are serviced, some are outsourced.
Don't forget as a lender you lend based on risk, the exact same deal in CA vs. say CT is going to have different rates. This means that whatever risk analysis west coast lenders use, we use as well and usually win because we have the lowest default rate out of all lenders our size.
Deal for deal, state for state, all deals have the same analysis and therefore similar rates +/- 1%-> It just matters who the borrower is more comfortable with :) @Jacob D Cockerell
not singling your company out.. just talking regional loan rates and licensure.. right now on the west coast we get these loans at same ARV LTV for purchase rehab for 1 point and 8 to 8.5 % I know on east coast I have not see rates that low.
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Nicolas BeaujeanPro Member
Boston, MA · Member since 2019 · 75 posts · 9 votes
7y
@Jay Hinrichs That's correct- you won't see those rates on the east coast BUT east coast based companies do lend at those rates for projects on the west coast. Market Market Market, doesn't matter where a companies HQ is. If a company used East coast market analysis for a west coast property they wouldn't be in business sir
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
7y
Originally posted by @Nicolas Beaujean:

@Jay Hinrichs That's correct- you won't see those rates on the east coast BUT east coast based companies do lend at those rates for projects on the west coast. Market Market Market, doesn't matter where a companies HQ is. If a company used East coast market analysis for a west coast property they wouldn't be in business sir
what I find is when the company decision makers are far out of market they tend to get more conservative.. or stupid depends on which side of the coin your own.. also default rates for private lenders like these are not public.. you have no clue if your company is the lowest .. could be might not be.. you would have to mine a lot of data to figure that out.
that's one reason the crowdfund lenders like Patch of land who works in your hood.. they don't have to disclose and they don't. none of them do.
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David Wright
Lender · USA · Member since 2013 · 186 posts · 97 votes
7y
@Jacob D Cockerell - speaking as Broker for Hard Money Lenders you can expect the following for a new investor:
1. 30% Down payment + Closing Cost and Reserves (3 to 6 months of the monthly loan payment)
2. Interest Only rate anywhere between 9% to 14% depending on lender
3. Terms between 6 to 24 months for rehab loans
4. 80 to 100% paying the rehab cost of the loan
5. Not the best customer service with most lenders (just trying to be honest)
I hope this helps you Jacob and I wish you the best.
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Syed H.
Developer · NY/NJ/PA · Member since 2018 · 758 posts · 935 votes
7y
@Jacob D Cockerell No offense to all the lenders here, But if you can, DO NOT use a HML for your first flip.
The first flip is a learning experience. It is a fun and stressful time. There is enough to worry about on your first flip. Worrying about paying the extra cost of a HML, becomes daunting. Waiting for you first draw to hit might delay your project.

When we first started flipping 7-8 years ago, many of the HML's were unethical sharks. Many wanted to loan to own (here in NY). Effective cost of the HML was extremely high (close to 20%). You would need a major homerun deal to be able to afford that.
We didn't start borrowing from HMLs until 3 years into the business. At that point we found much better HMLs that worked with us, had streamlined fees, and charged us wayyyy less. Even on the first flip we used a HML on, we had an extra level of stress lol.
If you do go with a HML, make sure the 3rd party fees are reasonable. Attorney fees, appraisal; etc etc, should not be excessive. These will depend on your market.
Make sure you know the draw fees, draw process, and inspection costs.
2 Reply
Ann Bellamy
Lender · Tyngsboro, MA · Member since 2009 · 3k+ posts · 2k+ votes
7y
Listen to @Jay Hinrichs. If you are in CA, use a local lender. In fact, you should almost always use a local lender if you can, for several reasons:
1. A local lender has local connections which can sometimes help you, ie, buyers, real estate agents, contractors, inspectors, whatever.
2. Local lender should know the market and can help you on ARV. If your ARV is way higher than your lender's, that should give you pause.
3. Local lenders frequently have local market knowledge and do their own appraisals. They are often real estate investors taking an easier path. So you won't have to pay appraisals, application fees, etc. Always ask about all the fees, both at close and at the back end.
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Chris Miller
Member since 2018 · 81 posts · 26 votes
7y
Hi all. I’m looking to buy an undermarket 4plex with hard money/private financing and am strapped for down payment at moment as I’ve spent most of my capital on rental remodels/deals. I currently own 8 multi unit buildings in so cal and would love to make this one work I just came across. Question is does anyone know how to get private financing for the down payment for the hard money?? I’m thinkin personal loan or something of the sort. Any thoughts or ideas would be appreciated!
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