Miami, FL · Member since 2019 · 42 posts · 7 votes
So i have some one who i know is legitimate and just told me what he can offer me.
His offer is i pay 10% of property and he pays the other 90% with 9%-9.5% interest. And he also pays 100% of the rehab.
Im just wondering is this common or did i just get this lucky? I dont have the savings to use it yet but id like to know your thoughts on how good wod this offer be using the brrrr method or is this better for flipping?
Seabrook/Galveston · Member since 2018 · 274 posts · 178 votes
7y
Jet Lending here in Houston did 70% of ARV for me last year on my first brrrr(and only second rental). House was 85k, repair estimate 10k, ARV estimate 140k. 3 points, 11.9% interest, and a few fees (1100ish). I think i paid a few hundred at closing. House appraised at 170k and I got a check after my ReFi!
Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes
7y
Yes, this is an excellent hard money loan structuring even for someone with experience and amazing for someone with none. Even if you have to pay 3-4 points (each point is 1% of loan amount) and some junk lender fees at close this is still favorable. Best of luck with the project.
Contractor · Magnolia, TX · Member since 2016 · 279 posts · 155 votes
7y
What are the draw inspection fees? Amy limit to the number of draws? Any mandatory "rest" period between draws (i.e. we won't do a draw within six weeks of your previous draw)?
If you're just starting out and don't have a lot of cash reserves, these questions are almost more important than the interest rate/points/fees questions. None of that matters if you can't afford to have any actual work done because your lender won't release the money (that you're already paying interest on).
Drawn balance interest payments are what you want. If you're paying interest on the entire amount from day 1 then the lender has no incentive to disburse the remaining funds.
Rental Property Investor · Chicago, IL · Member since 2017 · 6 posts · 1 vote
7y
@Rolando Caceres I am actually working through a deal right now using these same numbers for my hard money loan. Seemed too good to be true considering I though hard money was 12-15 % interest rates all the way. Plus the 10% down was a lot let then I was hearing as well.
Miami, FL · Member since 2019 · 42 posts · 7 votes
7y
@Andrew Taylor i would ask how you know all this but i feel like u will say "by reading, now go do the same" lol i have been reading though lol thanks for your help!
Contractor · Magnolia, TX · Member since 2016 · 279 posts · 155 votes
7y
@Rolando Caceres I did read a lot, but I meant that I learned the hard way to ask those questions up front. You'll need more cash than you think when you're getting started.
@Rolando Caceres - I agree with what's already been said on the thread. One more "gotcha" to validate there might be a cap of 70 or 75% of the ARV value that would lower that 100% of rehab number.
For example, purchase is 100k and it's a 50k rehab but their ARV only comes back at 165k. They'd only lend 70-75% which is like 120k(ish) so you'd be coming out of pocket with the remaining 30k. This is somewhat of a good thing as it's a safety net that stops you from over-valuate the ARV/doing too skinny of a deal.
This is probably a dumb question. But I still get confused on the whole LTV or ARV. For hard money lenders anyway
Say a lender is 80% LTV. What is the "value" is that purchase price or their appraisal price? So if I found a deal like you mentioned 100k purchase, does that mean theyd loan $80k for that? Or would they be loaning on the ARV as the value?
Rental Property Investor · Chicago · Member since 2018 · 612 posts · 1k+ votes
7y
For "typical" financing yes, but HML who provide funds for rehab will usually account for the ARV number after validating the current value and your rehab plan.
They want to ensure you're deal is not too skinny and you are not being overly optimistic in your ARV.
@Rolando Caceres - I agree with what's already been said on the thread. One more "gotcha" to validate there might be a cap of 70 or 75% of the ARV value that would lower that 100% of rehab number.
For example, purchase is 100k and it's a 50k rehab but their ARV only comes back at 165k. They'd only lend 70-75% which is like 120k(ish) so you'd be coming out of pocket with the remaining 30k. This is somewhat of a good thing as it's a safety net that stops you from over-valuate the ARV/doing too skinny of a deal.
This is probably a dumb question. But I still get confused on the whole LTV or ARV. For hard money lenders anyway
Say a lender is 80% LTV. What is the "value" is that purchase price or their appraisal price? So if I found a deal like you mentioned 100k purchase, does that mean theyd loan $80k for that? Or would they be loaning on the ARV as the value?
- LTV is the current As-Is value.
- ARV is the After Repair Value
- Purchase price is your purchase price.
A HML may wish to lend using any of the above as loan caps. For us the LTV and ARV is determined by appraisal.
We for instance might lend up to the lower of either 90% of Purchase Price or 75% of LTV - Whichever is lower.
On top of that we might lend up to 100% of Rehab (if any). Why "up to"? Because the total loan size including rehab cannot, for us, exceed 70% of ARV.
Specialist · Orlando, FL · Member since 2019 · 4 posts · 1 vote
7y
@Rolando Caceres Thanks for posting this question! I've been researching HML's and got a ton of great info reading through the responses. Good luck with the deal!
Miami, FL · Member since 2019 · 42 posts · 7 votes
7y
@Michael Noto thank you Michael. That makes me feel safer. Also random question but if 1 point is 1% of LTV, and 3 points is 3% of LTV then why do they call it points and not just call it what it is... A percent? I know its random lol
To clarify, lenders can structure interest accruement on funds in different ways.
Some lenders charge interest on the total loan amount once the loan closes.
Other lenders only charge interest on the 'amounts funded'. If you have an undrawn construction portion of the loan that is 50k for example, then you would not be paying interest on that 50k until it is funded to you. This results in a lower cost of capital, ceteris paribus.