What should you expect from a hard money lender?

Question

What should I expect from a hard money lender as far as terms?  Can you ask for space to renovate?

Odie Ayaga · Answer

There's a little too much "use your friend's money on your very first deal" on this site in general. If you have a friend willing to loan you $200K and doesn't care if they lose money in the deal or you have a background that suggests you've got a higher chance of success than someone with absolutely no experience in real estate then fine.

If not, most starting out have a hard time finding private lenders and don't have the time to wait on a bank loan or don't qualify for a smaller down payment. Hard money is an option that investors should at least be knowledgable about to know when to use it. Also, just to clarify @Anthony Dooley's example above there's a difference between interest rate and APR. If you're paying 12% on a 6 month term you're paying way too much (2% per month). Most new investors can get 10-11% on a 12 month term. I also wouldn't advise a new investor get a loan for less than a 12 month term.

And to answer your question Brad it CAN be a flat fee if there's minimum interest or prepayment penalties as part of the loan. Usually it's not.

Anthony Dooley · Answer

Call a few HML and ask them. I have never used them because I can get it from the bank for less than 6% and friends for 8%.

Oliver Carey · Answer

Private & Hard Money can provide 80% of the Purchase Price for rental properties... For Fix & Flips 90% PP 100% Rehab - There are 100% financing options as well if you can secure a property under 65% LTV

Brad Ball · Answer

Thanks for the replies @Anthony Dooley and @Odie Ayaga. Good information to collect so I can ask better questions. I recently got loan information from a HML and was astonished by just how much it cost to borrow from them and the money I still needed to have on hand to get the loan.

I just got back from meeting with a business lender at a local bank. Continuing to build my options so when the right time strikes I'm ready to go.

Brad Ball · Answer

@Anthony Dooley Is the 12% interest for 6-8 months a flat fee? So $100,000 costs $12,000 (total repayment is $112,000)? Or does add up another way? Thanks.

Anthony Dooley · Answer

Hard money will cost you about 12% interest for 6-8 months. At which point you will need to sell or refinance the property to pay them off. I prefer to pay a friend 6-8% for a 12 month term. You probably know someone that has money that would love to earn 8% on their money for a year.

Odie Ayaga · Answer

Hi @Rania Tohmah. What do you mean by "space to renovate"?

Doran Summers · Answer

@Rania Tohmah I’m assuming you looking for a bridge loan. Usually 12 month terms with no prepayment penalty. Some do have prepayment after 6 months so watch out  terms. Usually depends on how many flips you completed in the past 2 years. Usually most lenders offer 80% to 90% of total loan amount up to 70% after repair value.

For example let’s say the purchase is $100,000 and repairs is $50,000 and arv is $250,000.

The max the lender can offer is $175,000.

That’s what they can offer which means you still need to bring 10 to 20% to the table.

Rates range from 6.75% (having done around 14 to 25 yearly) to 11% having done none in the past 2 years.

What should you expect from a hard money lender?

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