Does it exist?: HML on a first flip for less than 3 pts and 12%

13 Replies

Looking through some hard money lenders that are on the HML section of the site, this stuff is steep. I know people are doing this stuff cheaper but I'm having some trouble finding it.

Looking mostly in Baltimore, Maryland for now

Hi Don,

This is a high starting rate even for a new borrower right now.  Money is getting cheaper and its a race to the bottom at the moment.  Lenders will still take into account credit, track record and the asset itself but typical starting rates are 2-3.5 points and 10%.  

The exception in your case may be the location of the properties.  If the deals you are looking at are in Baltimore City and at a lower price point then expect to pay higher rates to make up for the risk.  Baltimore comes with a lot of negative baggage therefore many lenders build that into the origination.  

Hi Don,

Good HMLs are hard to find. Some good hard money lenders I know of in Baltimore are Dominion Financial Services and PSG Lending. As said in the previous posts, they will ask for assets, income, credit verifications etc. PM me if you would like me to get you in touch! All the best! 

Yannik. 

starting out you can't focus on 1 point being too high.. its all about building track record.

now I personally have a few loans from other institutions of other than my commercial bank.

so lets set that expectation.. full doc  long track record.. hundreds of projects in the last few years all verifiable by public records.. and at my commercial bank in SC  I am at 1. and 5.5  and only pay interest on drawn funds.

in Oregon I am at 1 and 6%  again only interest on drawn funds.

when I borrowed a few million from lendinghome  for some texas deals ( that were bummers never again) I was at 1 and 8 but paid on commitment.

doing a vertical right now in Charleston ( these are quite hard to get and first timers probably cant get one unless they are extremely high wage earners)  but Lima one is doing this for 1.5% and 8  with a 3% rate on un drawn funds.. I am using them because I am at my limit with my bank there.

and even for me.. I don't focus totally on cost of capital its what I can make.. if its a thin project of course would not do it.. but these are very HiGH gross and net profit deals so paying 5k more on a few hundred grand loan is no issue.

you need to start.. its all about relationships in HML... and if the deal is no good at 2 and 12 then pass.. its probably two tight at 1 and 10 as well.

many first time flippers make zero money or lose.. even us old dogs don't do well on all of them  ( think Texas for Jay  LOL) I can laugh about it but if I was a first time in this I would have been wiped out and out of the business.

The only one I've considered working with, a friend and co-worker, will do 2 and 12 for me because I have some track record. I've heard from people with track records getting 8 from friends. I've also heard from a large online company that wanted to charge me like 5 and 16 or 18. I thought they were crazy!

I used to use cash for my deals. I'm struggling to make anything work with hard money right now.

@Ned Carey   short hand for new construction loan.. as in from the ground up construction .. we call them vertical loans.. then when I build housing tracts.. and have to put in sewer water elec storm sewer roads etc.. we call that loan a Horizontal loan.. :)  or commonly known also as an underground loan.

but since some of the work is on top of the ground we just came up with Horizonatal..

Like @Jay Hinrichs said - Don't focus on the sticker shock. Crunch the actual numbers and you may find it doesn't matter that much.

Let's say you're borrowing $100k for six months:

  • At 3 & 12, you're going to pay $3k in points and $6k in interest payments. Total financing cost, $9k.
  • At 2 and 9, you're going to pay $2k in points and $4,500 in interest payments. Total financing costs, $6,500. 

Does $2,500 really make it or break it in terms of you doing the deal versus not doing the deal? It shouldn't. (If it does, your margins are waaaayyy to thin and it wasn't a deal in the first place, so you probably wouldn't have gotten the loan from a savvy lender anyway). 

Be thankful they'll give you the loan and 3/12 so you can do the deal and make some money! Gain some experience and cheaper financing may come down the road with experience. 

Originally posted by @Jeff Copeland :

Like @Jay Hinrichs said - Don't focus on the sticker shock. Crunch the actual numbers and you may find it doesn't matter that much.

Let's say you're borrowing $100k for six months:

  • At 3 & 12, you're going to pay $3k in points and $6k in interest payments. Total financing cost, $9k.
  • At 2 and 9, you're going to pay $2k in points and $4,500 in interest payments. Total financing costs, $6,500. 

Does $2,500 really make it or break it in terms of you doing the deal versus not doing the deal? It shouldn't. (If it does, your margins are waaaayyy to thin and it wasn't a deal in the first place, so you probably wouldn't have gotten the loan from a savvy lender anyway). 

Be thankful they'll give you the loan and 3/12 so you can do the deal and make some money! Gain some experience and cheaper financing may come down the road with experience. 

one place for fun to look .. is lendinghome.com  and look at their pricing matrix .. you will see pricing is directly related to two things.. equity and experience..  and sometimes they will through in fico a little bit.. but you will see the guys with heavy heavy experience get the best deals.. beginners pay the most.. and it stands to reason risk/reward..

so most need to just get started and make the deals put them in their experience bucket and get going.