Hard Money Lender is a little too pricey

5 Reply

Alex BekezaBusiness Member

Lender · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes

[email protected]818-606-8823

@Manny Fernandez In this environment where it is certainly not business as usual I'd say that's a pretty fair shake. I would take it and run. I'm hopeful that we'll see better hard money pricing come back in June/July as more states/cities continue to achieve milestones in reopening their economies. If this were were just two months ago or so I'd be trying to get a hold of you with a small handful of options that would smoke that pricing but this type of lending is upside down right now until the bigger HMLs can property assess risk.

Investor Property Loan5308 Reviews

Odie Ayaga

Specialist · Delran, NJ · Member since 2016 · 2k+ posts · 951 votes

That was a pretty good deal before all of this. That's a great deal now

2 Reply

Chris MasonPro Member

Moderator

Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes

Originally posted by @Manny Fernandez:

Hello friends! In the midst of the chaos, the Texas market continues to go strong and we are still buying and flipping. We are working on acquiring a property in Mansfield, TX (Suburb of Fort Worth). The purchase price is 250k, Rehab is 100k and ARV is 450k. We have reached out to 6 hard money lenders about the deal 3 aren't lending, 1 hasn't responded and 2 have responded and are about the same terms. Here's the terms so far: 70% of the ARV and 90% LTC. So they are lending 315k but we have to put 25k of that out of pocket since they are doing 90% LTC. Next, Interest is 11% which is nice, but there are 3points up front and a few extra fees for appraisals and such. Not terrible terms, but just looking for something with fewer points or 100% LTC or something like that. Let me know if anyone has any leads or other ideas. Thanks!

This is about the going rate for high risk un-subsidized borrowed money.

For the last few years Wall Street has been in the HML market, buying pools of HML and all that. That's where the 6.99% and 1 point from a year ago came from. "True" self financed HML never dipped from what you are seeing, they just had a smaller and smaller marketshare as Wall St pumped more competitive money into the "pseudo HML" space.

Now, that's gone. The HML are actually literally lending their own money now. It is what it is, and some folks have been operating on margins too thin to be able to afford those loans and still turn a profit. They either need to re-tool, find better deals, figure it out, or they go out of business.

The good news is that you aren't the only one in this boat. For a property too beat up to get a Fannie loan, EVERY flipper or rehabber is going through the exact same thing. Folks that own such properties are going to be in denial about the market value of their home that can't get a Fannie loan for a while, and on top of that the federal gov't just gave them 3-12 months wherein they don't have to make a mortgage payment, so those "motivated sellers" with beat up homes might just be 3-12 months from putting them on the market. So really 2 big things:

1 - Can a flipper survive 3-12 months with fewer "motivated sellers" due to that 3-12 months of gravy train forbearance runway that all the owners just got?

2 - For those deals that are out there, can the flipper still operate at a profit with HML being where it is at without any Wall Street backing?

Some are going to make it, some aren't. Same with Realtors, same with landlords, same with the mortgage biz. Improvise, adapt, overcome... or go out of business. That's it.

On my end, FWIW, I've been taking mentorship and advice more or less exclusively from loan originators that were in business pre-2008, survived 2008, and kept lending all the way until 2012 when things got good. I got started post-2012, so to be frank I've never given a damn about the advice of another loan originator that also got started in the same era. This is where the herd is culled, no point in talking to someone that hasn't survived a culling. That's why I listened in on @Jason Hsiao's zoom broadcast thing the other day, because his guest was @Jay Hinrichs who has been in it for like 5 economic cycles and survived. Assuming this is your first downturn like it is for me, I hope you've been taking advice on best practices, etc, on folks that were flipping pre-2008, that could be make-or-break for you in the coming year.

7 Reply

Russell BrazilBusiness Member

Moderator

Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes

[email protected]301-893-4635 Podcast Guest on Show #192

During the housing collapse, I was paying 4-5 pts and 13-15% lol.

District Invest Group545 Reviews

11 Reply

Tammy Richards

Lender · Dallas, TX · Member since 2020 · 8 posts · 4 votes

@Manny Fernandez The advice you are getting here is solid. Good luck!

2 Reply

Joe Cassandra

Rental Property Investor · Woodstock, GA · Member since 2017 · 517 posts · 772 votes

Around Atlanta right now, I'm seeing 11-13% and 2-3 points.

2019 = 9-13% , 1-2 points.

If you're dead set on ARV and rehab, you may be able to find a private lender around 8-10% with 0 points. Post the deal in the marketplace and see of any takers.

Many investors sold out their stocks and looking to put cash somewhere.

2 Reply

Karen F.

Investor · San Diego, CA · Member since 2015 · 435 posts · 421 votes

I recently researched the market in CT for hard money, and then did a deal with a trusted employee with bad credit on a property that we helped him find. Purchase 131K, after about 20K plus sweat equity rehab would be worth 200K. We lent him 150K at 10% simple interest, 2 points, two year term, can pay off early. He also paid our attorney's fee for the mortgage, which wasn't much. Of course, he paid all other closing costs for himself, too. Otherwise, he put no money into the deal. Market rate would have been about 11.5%, 70% loan on purchase price, 2.5-3 points, and they'd have expected him to have good credit, and put down 30% plus closing costs.

It was a good deal for him and for us, he's done a beautiful job fixing it up and renting it out, his credit is improving, and we're already looking for his next deal. But we would never have done the deal for someone we didn't know and trust.

3 Reply

George DespotopoulosBusiness Member

Lender · New York, NY · Member since 2016 · 936 posts · 287 votes

@Manny Fernandez the terms you've quoted here are extremely competitive for the current market. 90% LTC is rather aggressive from a lender's perspective at the moment-- I wouldn't think it's smart lending but from an investor's side, I would go with it.

MoFin Lending4.9152 Reviews

Tammy Richards

Lender · Dallas, TX · Member since 2020 · 8 posts · 4 votes

@Joe Cassandra Indeed! Great to see you here!

Stephanie P.Pro Member

Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes

@Manny Fernandez

You're at 80% of the ARV with your acquisition and rehab not to mention carrying costs. I'd say you're pushing the limits of what you would have gotten in the previous market. 11 and 3 for hard money is a decent deal considering your numbers.

Stephanie

Dan BeaulieuPro Member

Lender · Knoxville, Tennessee (TN) · Member since 2016 · 422 posts · 667 votes

@Manny Fernandez I know of one HML that is still lending 100% LTC in your market...

Corby GoadeBusiness Member

Investor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes

Of course hard money is expensive- that's the entire point of hard money. You've got to deal a few slim deals like this to get to the point that you don't need HML, but if that's the only way to get a decent deal done, then jump in.

For deals like this- the best way to go, if you can find one, is an equity partner. Someone who will fund your deal for a piece of the profit rather than charging you for the use of their money. That takes time, relationship building and some trust, but they're out there.

Best of luck!

Manny Fernandez

OP

Flipper/Rehabber · Arlington, TX · Member since 2013 · 35 posts · 12 votes

Originally posted by @Dan Beaulieu:

@Manny Fernandez I know of one HML that is still lending 100% LTC in your market...

Are you referring to Longhorn? Or do you know of someone else? Thanks Dan!

Bruce C.

Seabrook/Galveston · Member since 2018 · 274 posts · 178 votes

I got 70% and 100% from Jet with 8.9% rate and 3 points as recently as October. Dont know if they go out as far from Houston as FW though.

Mark Sewell

Investor · Houston, TX · Member since 2017 · 1k+ posts · 871 votes

Originally posted by @Bruce C.:

I got 70% and 100% from Jet with 8.9% rate and 3 points as recently as October. Dont know if they go out as far from Houston as FW though.

Jet has reps in DFW. Mansfield should be OK, they go all over TX. Call Taylor Harmon. I don't have his contacts but I can get them.

I know for sure that Jet doesn't do LTC. They don't care what you buy it for. They are 70% LTV, that's it.

Bruce C.

Seabrook/Galveston · Member since 2018 · 274 posts · 178 votes

@Mark Sewell

Yeah, that is a better way to state it. I was trying to point out they don’t have a cap on what they’ll loan for the repairs, as long as the total is 70% or less.

Calvin Thomas

Developer · New York City, NY · Member since 2015 · 812 posts · 718 votes

Originally posted by @Manny Fernandez:

Hello friends! In the midst of the chaos, the Texas market continues to go strong and we are still buying and flipping. We are working on acquiring a property in Mansfield, TX (Suburb of Fort Worth). The purchase price is 250k, Rehab is 100k and ARV is 450k. We have reached out to 6 hard money lenders about the deal 3 aren't lending, 1 hasn't responded and 2 have responded and are about the same terms. Here's the terms so far: 70% of the ARV and 90% LTC. So they are lending 315k but we have to put 25k of that out of pocket since they are doing 90% LTC. Next, Interest is 11% which is nice, but there are 3points up front and a few extra fees for appraisals and such. Not terrible terms, but just looking for something with fewer points or 100% LTC or something like that. Let me know if anyone has any leads or other ideas. Thanks!

It's a good deal....... For the HML. Work on increasing your savings, retaining a partner or getting rehab costs down.

Will Fraser

Real Estate Broker · Salt Lake City & Oklahoma City · Member since 2018 · 3k+ posts · 2k+ votes

This is a great illustration of the power of private equity partners. If you have a track record of flips and can share that with people who are interested in diversifying their investments (highlight this aspect because remember what March in the equities market looked like?!?) and you can show them how they can safely do that with you, you may just find yourself saving several points each time you do a deal :)

Mark Sewell

Investor · Houston, TX · Member since 2017 · 1k+ posts · 871 votes

There should be more than one club in your bag... HM lenders, PM lenders, maybe even some equity partners if it makes sense. Get those bank lines set up, build reserves, etc.

Cody L.

Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes

Originally posted by @Manny Fernandez:

Hello friends! In the midst of the chaos, the Texas market continues to go strong and we are still buying and flipping. We are working on acquiring a property in Mansfield, TX (Suburb of Fort Worth). The purchase price is 250k, Rehab is 100k and ARV is 450k. We have reached out to 6 hard money lenders about the deal 3 aren't lending, 1 hasn't responded and 2 have responded and are about the same terms. Here's the terms so far: 70% of the ARV and 90% LTC. So they are lending 315k but we have to put 25k of that out of pocket since they are doing 90% LTC. Next, Interest is 11% which is nice, but there are 3points up front and a few extra fees for appraisals and such. Not terrible terms, but just looking for something with fewer points or 100% LTC or something like that. Let me know if anyone has any leads or other ideas. Thanks!

90% LTC? Take it and run. Who cares about 11% if it's a fix/flip. The diff between 11% and 8% or whateber you think might be better isn't going to move the needle much.

I'd take the deal -- try to lower the points a bit. But in this market? Dude -- take it.

Reh N.

Specialist · New York, NY · Member since 2019 · 29 posts · 3 votes

Hi All,

I’m also looking to purchase a foreclosure through hard money but I’d like to house hack. And I had a few questions. After rehab is completely done, I understand you need to goto a bank and apply for financing so you could pay the hard money lender off.

One of the question I have is do you have to get approved with the same process as if you were purchasing a home with a conventional loan? This wouldn’t be possible for me. Also, I will be using a contractor I’ve been familiar with for a very long time. They have a proven track record and finish projects before anticipated date. So assume I get the hard money, would I get penalized if I pay earlier? Also, will the hard money lender find me a conventional loan for this rehab project after it is done?

If they do, then what if their rates are too high? Can I goto a bank of my choice? Will I get penalized? How long will the financing process take from after the rehab project is done? Thanks!

Odie Ayaga

Specialist · Delran, NJ · Member since 2016 · 2k+ posts · 951 votes

@Reh N. if you're going to house hack you won't be able to use a hard money lender as they're non-owner occupied only

Reh N.

Specialist · New York, NY · Member since 2019 · 29 posts · 3 votes

@Odie Ayaga I could choose to rent both apartments and still make a little bit of cash flow. Not the main answer I’m looking for though

Matt Devincenzo

Investor · Clairemont, CA · Member since 2011 · 3k+ posts · 2k+ votes

@Reh N. you should start your own discussion to try and get these answered. Your questions are buried inside of this discussion so it's not likely you'll get many good responses, especially since everyone is addressing the original question.