Reston, VA · Member since 2018 · 17 posts · 15 votes
Hey! I'm not new to REI and I've been talking about getting my first property for several years now. I'm finally ready. I found a property on an auction site that I'd like to bid on. I'm looking to use it as an investment, not a primary residence. I'm considering using hard money lenders or DSCR loans, but it seems like DSCR would be a bit complex. I'd also like to try to purchase with a land trust or my LLC. Any recommendations for hard money lenders? Thanks.
What you are asking is a super important question and it doesn't just apply to lenders. How do you know that a contractor is any good? An electrician? A title company? Anything? Even if they do have 20 years experience...how do you really know? And while nothing is foolproof the most consistent method of finding good vendors is relying on OTHER real estate investors that have worked with those vendors. This is why we network with other real estate investors - kind of like what you are doing here!
So, let's 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. Your profile states Dallas and there are several here in our area. Now, your post also stated Dayton, Ohio - any reason why you want to invest elsewhere? Even facebook might have some good local groups for you. Some of those facebook groups have thousands of members. The priority is consistent recommendations from active investors. Oh, eventbrite too. But post locally for this. That’s the best bet.
What you are asking is a super important question and it doesn't just apply to lenders. How do you know that a contractor is any good? An electrician? A title company? Anything? Even if they do have 20 years experience...how do you really know? And while nothing is foolproof the most consistent method of finding good vendors is relying on OTHER real estate investors that have worked with those vendors. This is why we network with other real estate investors - kind of like what you are doing here!
So, let's 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. Your profile states Dallas and there are several here in our area. Now, your post also stated Dayton, Ohio - any reason why you want to invest elsewhere? Even facebook might have some good local groups for you. Some of those facebook groups have thousands of members. The priority is consistent recommendations from active investors. Oh, eventbrite too. But post locally for this. That’s the best bet.
Lender · TX · Member since 2018 · 936 posts · 713 votes
1y
@India H. Congratulations on taking that big step to getting your first deal. I have found there are some very important questions to ask any lender but these are geared a little more for hard money lenders.
Are you a direct lender?
This will be a gateway question. If the answer is no, that means they are a broker of some type. Typically this means they will take longer to close, may not have all the information for the companies they work with, and most hard money brokers get their money by taking an existing product and adding extra points to pay their fee.
What is your investor success rate?
Another way to ask this is what is your default rate. This is important to know. Many don’t track this statistic as closely as they should which is why many lenders go under. I think it is probably the most important stat. You want to make sure they are at or below 5% to make sure they are able to stay solvent. You don’t want your lender to go out of business while still holding your construction escrow funds.
Can you provide me with the contact info of some recent borrowers?
Any good HML will be happy to share the contact info of borrowers so you can see how easy the process was and how well they treated the investor.
Can you share a recent closing document or HUD?
This will show you more evidence of the fees they really charge. Not all lenders will share this as they will need to get approval from the borrower before providing. If not, at least make sure that you get a term sheet. This should put in writing what the fees will be.
What is your maximum LTC and LTV?
LTC is sometimes referred to initial funding. This is the percentage of costs (purchase and rehab) covered by the loan. A general range tends to be 85% to 100% covered. LTV is normally expressed as a percentage and that percentage is of the ARV. A general range tends to be 65% to 75% of value. Lenders will lend the lower of the amount between LTC and LTV.
Do you require an appraisal and survey?
Most HMLs will require these. I am wary of the ones that don’t require an appraisal. Lenders that don’t require an appraisal will perform a desktop appraisal but will typically have a very conservative view on the value of the property to protect the company’s investment. This means you will be coming out of pocket more. Survey is a toss-up on whether or not it will be required. Know that every long term lender will require a survey and if something comes up on it when you are trying to sell or refi, you could get stuck in hard money without an easy or quick way to get out.
Is there a pre-payment penalty?
Some will require you to pay the interest through the term or another length no matter how long you hold the loan. Just make sure that you include this requirement in your costs.
What is your draw fee & benchmarks for the repairs portion of the borrowed money?
Know what your fees will be to take out the repair money borrowed. Draws are almost always held back until you reach certain points in the project or that work is completed. They will also charge you to have an inspection by a 3rd party or to use an app to make sure the work is done. I have seen this range from as low as $100 up to $300.
Do I need to pay anything before sitting at the closing table?
There have been numerous people on BP talking about how they paid application fees but they could never get their loans closed on any deal brought to the company. This is a practice by some less than reputable companies. One I saw charged $500 upfront to be pre-approved and would never actually fund any loans. Just beware. Most reputable HMLs will not charge anything until you are sitting at the closing table and all fees will be listed on the HUD-1 closing document.
And of course, what are the points, interest, and attorney/document/admin fees for the loan?
This will vary based on region but in general 2 – 5 points, 9% - 16% APR (meaning this is the annual rate so divide it by 12 to get the monthly interest amount), and documents fees can be from $600 – $1,900. The document fees are what will vary wildly from company to company. Just know them going in so that you can properly budget. You will also want to find out if payments are interest only or if some principal is built in. Most hard money will be interest only payments on the full approved balance of the loan whether or not if you have pull the draw funds for repairs.
If you have any other questions, post them in the same thread below so that we can all learn from the answers.
Hey! I'm not new to REI and I've been talking about getting my first property for several years now. I'm finally ready. I found a property on an auction site that I'd like to bid on. I'm looking to use it as an investment, not a primary residence. I'm considering using hard money lenders or DSCR loans, but it seems like DSCR would be a bit complex. I'd also like to try to purchase with a land trust or my LLC. Any recommendations for hard money lenders? Thanks.
Hi India! It's great to hear that you're finally ready to take action. Happy to connect and share my referrals.
@India H. Do you own your primary residence? If so, for how long?
I will second this one. If you don't own a primary, that's the best place to start on this journey. Get a small MF you can house hack and start that way.
I'm not an expert on the auction scene, but, from what I have read, that is a challenging first step into investing. Sometimes, sight unseen, a lot of unknowns. Do you have experience managing renovations if needed? Do you have the connections already established?
When you're diving into real estate investing, especially through auctions, it's essential to have your financing and structure in place. If you're considering hard money loans, they can provide fast funding, but with higher interest rates and shorter terms. Alternatively, DSCR loans offer long-term financing with lower rates, but they come with more complex requirements. As for the property structure, using an LLC offers liability protection, while a land trust provides privacy. Make sure to research lenders, get pre-approved, and calculate your potential ROI before bidding.
Good luck, and feel free to reach out for more advice!
Lender · Nashville TN, USA · Member since 2024 · 142 posts · 30 votes
1y
Hi India,
Congratulations on taking the leap into real estate investing!
Auction Property Considerations Research the Property: Ensure you’ve done due diligence (e.g., title search, property condition, and liens). Auction properties are often sold "as-is."
Understand Auction Rules: Auctions typically require fast closings, often within 7-14 days, so confirm your financing aligns with this timeline.
Hey! I'm not new to REI and I've been talking about getting my first property for several years now. I'm finally ready. I found a property on an auction site that I'd like to bid on. I'm looking to use it as an investment, not a primary residence. I'm considering using hard money lenders or DSCR loans, but it seems like DSCR would be a bit complex. I'd also like to try to purchase with a land trust or my LLC. Any recommendations for hard money lenders? Thanks.
I have some great local portfolio lenders, DSCR lenders, conventional lenders, and commercial lenders who are competitive. I can shoot you a PM with their info.
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