What comes first, the chicken (HML) or the egg (the deal)?

Question

Hey all,

Newbie investor here.  What comes first, the hard money, or the deal?  Is there such a thing as getting “pre-approved” with hard money lenders, or is it more typical to bring a deal to a hard money lender?  Or does it depend on the specific situation (investor experience, the deal itself, etc)?

Appreciate the feedback.

Justin

Matthew Drouin · Answer

@Justin Dao  dig your well before you are thirsty.  You want to build the relationship first with the private lender and as soon as possible.  After getting a mutual comfort level you will have more confidence in making offers and the specific process that the hard money lender requires.  Otherwise you aren’t going to make any offers because this factor is unknown to you.

Account Closed · Answer

Depends on the market. If you are trying to do something in SB it's unlikely HML will be the correct solution. If you are doing something in Las Vegas, Phoenix, Mesa, or somewhere in the midwest, you need to make contact with some HML's and find out what their criteria is to doing loans. With that information you can do the numbers to see if a particular deal will work. Once you can identify the market and price point, you find a deal and present it to your HML's and assume they will low ball the value of the property. That being said, experience will teach you how to focus in on the properties that work in the area and the HML's that will work with you. There are no real short cuts other than experience or working jointly with someone who has been doing what you want to do.

Account Closed · Answer

Make sure you ask the lender if they fund off of the ARV (after repair value) or off the purchase price or off of their appraisal.

Let's say the property may be worth $300,000 all fixed up but you are able to buy it for $200,000 in present condition. If the lender will do 75% LTV of ARV that is a loan of $225,000. But if they will do 75% of purchase price that is $150,000 and you bring in the 25% ($50,000 plus rehab money). It varies all over the board by HML so you have to give a scenario to get a true idea of where the numbers are. The bigger issues are don't pay money up front to get a loan and the other is finding a lender that actually funds in a timely manner. References from other investors in this arena are a must.

Ryan Deasy · Answer

@Justin Dao Hi Justin. I have some great HMLs that i work with. I will say, i am glad that i found them first. i know a lot of the times people say, if you have a good deal, people will lend on it! That is true. However, not all HMLs are created equal. i think if you have a great deal with no HML you may jump the gun and work with a HML that may not be the best one available to you and your new property. Currently, i have someone that will lend 90% of purchase, 100% of rehab, as long as the loan amount is under 75% of ARV. Let me know if you want to talk more. I am happy to put you in contact with anyone that i think may be able to help.

Mark Sewell · Answer

Pretty much, yes sir.  Go get a file opened up on you with the HML, or a couple of them.  Bring in all your tax returns, let them pull a credit report (if needed) and whatever else they ask for.  Ask them a lot of questions, etc., and get as far down the path as you can get without an actual deal.

They will give you a list of items you will need when you submit your deal.  Repair estimates will be the biggest thing you will need, but sometimes they even want photos of the place.  ARV/comps they can run themselves with just an address.

Saravanan Saravanan · Answer

@Justin Dao

Nice feedbacks from fellow BPs.

As a lender; we fund based on the deal.  However, it is a good to talk to lenders first to know:

• The locations (cities/ counties/ state) they fund; 
• Amount they are willing to fund (buyers put some money from their side); 
• Minimum $ and Maximum $ they fund
• How does the rehab funds work?
• Is 2nd lien allowed or not?
• Length of loan?
• How long will it take for them to approve the loan?

These would help you to plan whick lender to use for which situation.

POF is also essential for submitting offers.

Best wishes

Mark Sewell · Answer

Go talk to 2 or 3 of them in your local market.  I find that some of the biggest HM lenders here in Houston are also the local Homevestor franchise operators, and so they have a done hundreds of their own deals, maybe up in the thousands even, and they have strong insights and nobody will know your market better.  And sometimes they even offer to buy an occasional deal from you, which is a nice thing to have in your back pocket, just in case.

But sure @Justin Dao I get what you are saying.  I have this same stumbling block - theoretically I know I can fund a deal if I got my numbers right and it is a sweet deal, but you never really know 100% until you are ready to go to the closing table.  If I go sign a contract with a  seller, I want to know I can close.  But with HML you are only going to feel 'pretty sure' you can close, at best.

Just try to get as much of it lined up in advance as you can, even if everything is really 'conditional' on the actual deal.

Jason D. · Answer

@Justin Dao the same as buying a home for yourself.... to secure the loan, you need a property, but to get the property under contract, you should have funding options set up

Travis Nagler · Answer

Hi, Justin.

I was just speaking with a HML this afternoon about that. "How can you put in an offer without proof of funds (basically the pre-approval letter)?" For HML, they go by the deal. If the like the deal and the numbers, they'll finance it. So if you have a deal and an offer amount for the purchase loan, they will run them and then give you a POF letter.

From my email with Joe Zaniboni at PatchOfLand (HML)

----------------

Sure, for POF just send me the address and offer amount for the property you're looking at and I'll get you a letter.

Joe

On Tue, Apr 2, 2019 at 1:24 PM Travis Nagler  wrote:

Justin Dao · Answer

@Brian Gerlach I’ll be waiting like a snake in the grass with money lined up :^)

What comes first, the chicken (HML) or the egg (the deal)?

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