Which Loans are the Most Common

Question

Hi everyone!

Which loans do you find are used the most commonly in the deals that you do. Would love to hear anything you have to say!

Chris Harpe · Answer

Ask your hard money lender about their draw schedule, origination fees, etc. Draw schedule can be an important one. Paying contractors quickly is vital to keep their loyalty, so it's important to receive draws from your lender in a reasonable timeframe (draws are progress payments from your lender). In my market, market hard money rates are around 11% interest and 2% origination fee. Best of luck

Andrew Postell · Answer

@Joshua Messinger so the BRRRR method is all about keeping the property.  If you flip, there's no reason to do the REFINANCE nor the RENT step.  If you did REFINANCE....well, you are paying all of those loan costs so there's no reason to do that if you are selling the property.  Flipping is just buying a property, fixing it, and selling it.  Most of the hard money loans I use have an interest rate of 9%-12%.  Don't let your discussion with a HML all depend on rate.  Rate is NOT the most important thing to use when it comes to a lender - especially a hard money lender.

Any way, hope all of that makes sense.

Andrew Postell · Answer

@Joshua Messinger I work mostly with BRRRR method transactions so Hard Money would be the most common loan type that I see.

Chris Harpe · Answer

Look up "Construction Draw" and it may give you a better definition than I can provide.

Basically when you build new construction or remodel a house/building, the lender (whether it's hard money or traditional bank financing, etc) typically won't give you all the funds to for the construction work up front. They typically release the funds to you in stages as you perform work on the job. These disbursements of loan funds are called construction draws. For example, if you borrow $300,000 from a bank to build a house, they won't give you $300k when you start. They will give you a small percentage of that once you finish the foundation. Then they will give you more once it's framed, and so on. They basically only release funds for work that's been completed. Some lenders take longer to release these funds than others, and some don't release enough funds to cover the costs you've incurred until the project is very close to completion. Each lender has their own policy as to how they release these funds and when, and it's vital for you to know this. If you're not careful, you may end up in a situation where your contractor is asking to be paid for the work they did, but the bank won't pay the full amount in their draw, so you have to come up with the money yourself or have the contractor wait to be paid. Remember construction doesn't happen overnight and you've got to keep your contractors paid once they finish their work.

Joshua Messinger · Answer

Hey @Chris Harpe!

That's great to know, I haven't heard of draw schedules yet actually. Are you going to commonly see draw schedules during the rehab process? As you had mentioned paying contractors is vital I'm assuming this is a time frame where they must get paid within.

Thanks so much for this info anyways though Chris! I really appreciate it.

Joshua Messinger · Answer

Hey @Andrew Postell! That makes perfect sense, and actually didn't know you would just skip out on those parts! I'd love to learn more about what you've done in the past if you don't mind sharing. PMing you now!

Joshua Messinger · Answer

Hey @Mike Eichler! Let's dive into looking at the most common loans that people use while doing deals. I really feel it would be beneficial for us both to nail all of these down and gain some more experience in this area.

Thanks for the response back!!

Mike Eichler · Answer

I typically see first-time home buyer loans at a 5% down payment which is great for my new home buyer clients as they can get at a very low cost to them. They love it because they can finally stop renting and get. place of their own. If you have any questions feel free to reach out to me and I can provide more info if you'd like.

Joshua Messinger · Answer

Hey @Andrew Postell!

Thanks so much for the reply back - If you don't mind me asking two questions:

What are the most common interest rates that you see on the hard money loans that you get?

Do you end up holding onto your properties and renting them out for a while, or flip them after refinancing and competing the method?

Thanks so much once again, and congrats on all of your past success in real estate so far.

Which Loans are the Most Common

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