Questions for Hard Money Lenders

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Questions for Hard Money Lenders

Michael Williams
Rental Property Investor · Sacramento, CA · Member since 2017 · 202 posts · 82 votes

I've met with a commercial lender the other day and he recommended I receive a hard money loan as a down payment for purchasing my first commercial multifamily property in Sacramento, Ca. What are the best terms and rates I should request when I speak to a hard money lender? How can I successfully receive a hard money loan in the next 1-3 months?

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Andrew PostellPro Member
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
5y

@Michael Williams don't get me wrong here, points and fees are important, but the OTHER questions are even more important. Meaning, if my rate is 4%...but I'll only lend you 40% of the ARV....what good is that rate? I need the ability to close quickly, rehab the property, and come out of pocket as little as possible. I mean, I'm guessing here but that's why we use hard money. If you don't need to close quickly and don't need to rehab....then there's no reason to use hard money. So it does depend on your use but let's assume for a moment that your scenario demands hard money:

  1. Which local Real Estate Investor recommended you to this hard money lender? - that is the #1 question that needs to be answered.  Lean on your fellow local investors that have already vetting the lender you are using.  If this is your first time DO NOT use someone that is unless they are recommended to you.  If you need to know how to get a recommended lender then post in the state forum. Bigger Pockets has some great state forums and usually there are good locals that monitor those. Also, try some local real estate meetup groups. Meetup.com is a good resource for those but some of the groups will also post here on Bigger Pockets Marketplace too. Even facebook might have some good local groups for you. But post locally for this. That’s the best bet.
  2. What is the % of ARV you will lend to me? - Now since this is your first time....maybe 70% of the ARV would be appropriate. None of this 70% of the purchase price + 20% of repair junk. It is normal is 99% of markets to get 75% of the ARV of the property. That way, it limits your out of pocket money. The less you come out of pocket, the more deals you can do.
  3. How long of a loan will I receive? (what is the loan "term"?)
  4. What parts of town do you lend in?
  5. What types of properties will you lend on?
  6. How does your draw process work?
  7. How do you base your assessed value?
  8. How do you actually approve me or the property?
  9. Will you issue a "proof of funds" letter or prequalification letter?
  10. And lastly....what is your points and fees? - but this is minor to me. The other items are SIGNIFICANTLY more important.  Especially the recommendation.

Hope all of this makes sense but feel free to ask anything additional.  Thanks!  

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  • Andrew PostellPro Member
    Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
    5y

    @Michael Williams don't get me wrong here, points and fees are important, but the OTHER questions are even more important. Meaning, if my rate is 4%...but I'll only lend you 40% of the ARV....what good is that rate? I need the ability to close quickly, rehab the property, and come out of pocket as little as possible. I mean, I'm guessing here but that's why we use hard money. If you don't need to close quickly and don't need to rehab....then there's no reason to use hard money. So it does depend on your use but let's assume for a moment that your scenario demands hard money:

    1. Which local Real Estate Investor recommended you to this hard money lender? - that is the #1 question that needs to be answered.  Lean on your fellow local investors that have already vetting the lender you are using.  If this is your first time DO NOT use someone that is unless they are recommended to you.  If you need to know how to get a recommended lender then post in the state forum. Bigger Pockets has some great state forums and usually there are good locals that monitor those. Also, try some local real estate meetup groups. Meetup.com is a good resource for those but some of the groups will also post here on Bigger Pockets Marketplace too. Even facebook might have some good local groups for you. But post locally for this. That’s the best bet.
    2. What is the % of ARV you will lend to me? - Now since this is your first time....maybe 70% of the ARV would be appropriate. None of this 70% of the purchase price + 20% of repair junk. It is normal is 99% of markets to get 75% of the ARV of the property. That way, it limits your out of pocket money. The less you come out of pocket, the more deals you can do.
    3. How long of a loan will I receive? (what is the loan "term"?)
    4. What parts of town do you lend in?
    5. What types of properties will you lend on?
    6. How does your draw process work?
    7. How do you base your assessed value?
    8. How do you actually approve me or the property?
    9. Will you issue a "proof of funds" letter or prequalification letter?
    10. And lastly....what is your points and fees? - but this is minor to me. The other items are SIGNIFICANTLY more important.  Especially the recommendation.

    Hope all of this makes sense but feel free to ask anything additional.  Thanks!  

    3Reply
  • DJ DawsonBusiness Member
    Real Estate Agent · Sacramento, CA · Member since 2015 · 394 posts · 259 votes
    5y

    Very well said @Andrew Postell!! @Michael Williams I can connect you with the HML I have used for my last 7 deals. They are legit, as Andrew said for a first timer you will more than likely get a loan to value of 70% (keep in mind this is 70% of ARV not existing value) and 2 points.

    1Reply
  • Milica Krstc
    Lender · Member since 2018 · 668 posts · 34 votes
    5y

    As Andrew said (really great points there) you need a lender that will close your deal fast. From our experience, anything over two weeks is too much, and you are losing time and money.

    Andrew gave you very useful questions to ask lenders, but keep in mind they will have their set of questions for you as well. 

    Being inexperienced means that the requirements will be more strict, at least until you build a relationship with a lender, and then you will be able to get more, close faster, and send less paperwork. 

    Let me know if you have any questions. 

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