When To Contact a Hard Money Lender
Hey everyone!
I've posted before about HML, but this question is a bit different. We've always used conventional lending for all our deals in the past using 25% down payments so in the past analyzing a deal wasn't too difficult. We're interested in using HML because it becomes harder and harder to come up with such large down payments. We were introduced to a HML recently who will take 10% as a down payment, will fund 100% of the rehab and will use 70% ARV when refinancing us out of the HML. He will also wrap the first 3 months of payments, fees, closing costs, etc into the loan. My question is, should we contact the HML before putting a deal under contract or after? The reason I ask is because we recently lost out on a deal because we got stuck in analyzing the numbers and made an offer that we eventually got outbid on. It was a duplex going for 135K and needed about 100K in rehab. We offered 180K. The house ended up selling for 250K. When we ran our numbers on a purchase price of 180K this is what we came up with:
- Purchase price 180K
- 10% down payment 18K
- Rehab cost 100K
- New loan 262K
- ARV 70% so the house would need to appraise at 375K to pay off the HML
We know we are in a very competitive and expensive market, but when we got wind that it went under contract for 250K that really threw us off! Assuming the house was bought by and investor, which chances are it was because the house was swimming with investors during the showing, that would mean the house would have to appraise for at least 465K to pay off our HML if we would've bought the house for that amount! This really threw us off, but our realtor said it would definitely appraise and sell for something around that number.
When we placed our offer we didn't consult with our HML because we honestly didn't think the house would go for that much in that area, let alone appraise for that amount. Our fear is that we get into a deal like this in a very competitive market and the house doesn't appraise and now we're stuck with this HML and monthly payments.
So again, the question is when is it best to consult a HML? Before making an offer? Or after? Any advice will be great! This was a huge learning experience for us and we just want to make sure we don't make a bad decision in the future. Thanks!