Do 100% Hard Money Lenders Exist??

13 Replies

Hello BP!

I'm brandy new to investing and have a "potential" deal(not under contract yet). ARV 215(5-10K below market for quick sale), repairs 40K Conservative, Max offer 115K.

I don't have a lot in liquid cash less than 15K. I though I could leverage that by using a HML, but all(so far) want monthly payments for 6 month loans, and one is asking I bring 50K to closing!!

Am I just being new and naive thinking I can do a deal like this only bringing 10K MAX of my own money, or should I just keep shopping?

BTW, My plan or hope was to use my cash for reserves and to pay the contractor while I wait for the draws to clear.  I'm in NoVa if that adds any perspective 

@Guye Ferg  

As Far as 100% HML do you mean purchase and rehab Costs, if so yes they exist, if you mean 100% purchase, rehab and closing costs, appraisal, etc... No. They will all want some "skin in the game" or some of your own money in the deal, especially with you being new. If the deal goes bad, what's to keep you from saying oh well and walking away from it leaving them on the hook, they would be at 100% risk and you would have zero.... That's not how it works. I have used Hard Money twice, I have one that pays my purchase and rehab, but I have to pay the appraisal, closing costs, and the monthly interest payment... Which isn't cheap. You'll need to show them you have enough reserves, savings, a 401k or enough liquid capital to cover at least a 6 month time frame. They will also want a detailed scope of work so they know exactly what will be done during the rehab, they won't just give you 40k and say make it look good. You will need help from a contractor to get this done, showing parts and labor of each item you plan on renovating. Also, don't forget about your holding costs as well, which they will not pay for... Electric, water, sewer, trash, gas etc.... I hope that helps some, let me know if you have any other questions. Good luck on the deal!

Travis Boyer

Thanks for the substantive and thorough response. In all honesty, yes, at first I did think 100% meant "purchase, rehab and closing costs, appraisal, etc..." Essentially I though as long as the numbers were solid and I didn't exceed their LTV, I would be set. That being said I'm defiantly willing to put up my own capital, to get the deal to go through. My thinking was that my money would be used for those holding cost you mentioned as well as to cover the repair work while the draws clear, plus any unforeseen cost. I completely see your point as well about the HML being 100% at risk if the deal goes bad, and that makes total sense. As it stands, coming up with a sufficient down payment, monthly payment, holding cost, and reserves, seems like kind of a long shot w/only 10-15k in my market.

In your experinece with HMLs, would they frown on me bringing a partner or two to cover the costs mentioned above, or getting the contractor to take a second position mortage to do the work so their loan would be for acquisition costs only?

Thanks Again!

If the numbers work, why not consider wholesaling it.  Your fee could jump start your cash reserves for your next investment. Just a thought 

@Guye Ferg

they exist for very seasoned investors that have 10 to 20 successful closing with said HML.. for someone one off coming in off the street.. not very likely.. too risky

Originally posted by @Guye Ferg :

...ARV 215(5-10K below market for quick sale), repairs 40K Conservative, Max offer 115K.  

...I don't have a lot in liquid cash less than 15K. I though I could leverage that by using a HML, but all(so far) want monthly payments for 6 month loans, and one is asking I bring 50K to closing!! Am I just being new and naive thinking I can do a deal like this only bringing 10K MAX of my own money, or should I just keep shopping?...

Not sure where you got 10,000 from. If you are buying a property for $115,000 and have to spend an additional $40,000 in repairs, the 'Hard Money Lender' HML typically demands 20% down which would mean you need $31,000 for starts.

Add about 3.5% (loan origination fee -- some may charge 4%) to balance after your down and the HML would be looking to finance about $128,000 which includes the fee.

If your rate on the loan is between say 15% and 18%, the HML would want to see an additional $19,000 to $23,000 of cash reserves just to service the loan -- these are just rough estimates. This is in addition to the $31,000 down.

Hence in total, if your rate is 15%, you would need about $31,000 + $19,000 = $50,000; or, if your rate is 18%, you would need $31,000 + $23,000 =$54,000. Roughly.

This is why they may have told you to bring $50,000 to closing -- basically the down and evidence of ability to service the loan for at least 6 months.



Originally posted by @Jay Hinrichs :

@Guye Ferg

they exist for very seasoned investors that have 10 to 20 successful closing with said HML.. for someone one off coming in off the street.. not very likely.. too risky

I've done 100% Loan-To-Cost before as a HML if the acquisition, repair and closing costs were combined below 65% of the ARV. But as mentioned by Jay Hinrichs only for very seasoned investors that borrow every month and know what they are doing. Also, investors that have other collateral. Usually, the max is 70% LTV of ARV AND max 80% loan-to-cost.

We won't even loan at all to investors with no experience. 

@Ryland Taniguchi

  Ryland these are good points.. and those starting in the industry need ( IMHO) to look at this just like a start up business.. were do you usually get capital for a start up business.

Well you don't get it from a bank  ( no history) or many other types of lenders.

Were you do get it.. is from your warm network.. IE friends family etc etc.. and I guess you can hit up anyone and everyone you meet...

Lots of valuable time can be wasted chasing money that does not exist.

Yes my hml does 100% and at times I don't bring anything to the table (closing,  draw fees,  title work..... Absolutely nothing to the table).   It took me a long time to find a more flexible hml and I didn't start getting 100% lending until 4-5 successful deals together.  I still front the draws in most situations.   So they exist but it takes some work.   Also remember with hml you have to front the draws,  over budget scenarios comes out of your pocket and you have to pay payments so $10-15k doesn't go far with rehabbing on my flips. $30-40k per house would be my  recommendation as the minimum needed to get through a flip. 

@Ryland Taniguchi

@Jay Hinrichs

That is stellar insight thank you. The take away I get is, it [100% HML finaicing] is there, but not for the noob or inexperienced.

Account Closed

I will look further into wholesaling this one now. This property is a REO and I have a buyers aggreement with realtor, who showed me the house, not sure if either of those things make a diff. If I have her make an offer and I then assign the contract before closing...how does that work? Is she just out a commision at that point? Is the new seller obliagted to work with her? Is it even doable?

I didn't realize this was an reo with a listing agent. i'm not an expert and maybe someone with more experience could chime in but  I don't think you will be able to wholesale this property.  You would have to close on the house. 

Originally posted by :

I will look further into wholesaling this one now. This property is a REO and I have a buyers aggreement with realtor, who showed me the house, not sure if either of those things make a diff. If I have her make an offer and I then assign the contract before closing...how does that work? Is she just out a commision at that point? Is the new seller obliagted to work with her? Is it even doable?

You won't get an accepted offer on a REO without POF letter. I haven't tried, but am almost certain you cannot assign a contract for an REO either. I do know you can get transitional funding through a HML that will allow you to do a double closing.

I like your idea of bringing in a partner with the money, and splitting the profits. Being your first flip, having someone with experience will be useful for you. Ask around at your local REI club. Don't give details about the property before finding a partner though, or they might just go behind your back.

Even if this deal doesn't happen, you will have a partner ready, willing, and able for the next deal you find!

Hope that helps.

Originally posted by @Reed Starkey :
Originally posted by :

I will look further into wholesaling this one now. This property is a REO and I have a buyers aggreement with realtor, who showed me the house, not sure if either of those things make a diff. If I have her make an offer and I then assign the contract before closing...how does that work? Is she just out a commision at that point? Is the new seller obliagted to work with her? Is it even doable?

You won't get an accepted offer on a REO without POF letter. I haven't tried, but am almost certain you cannot assign a contract for an REO either. I do know you can get transitional funding through a HML that will allow you to do a double closing.

I like your idea of bringing in a partner with the money, and splitting the profits. Being your first flip, having someone with experience will be useful for you. Ask around at your local REI club. Don't give details about the property before finding a partner though, or they might just go behind your back.

Even if this deal doesn't happen, you will have a partner ready, willing, and able for the next deal you find!

Hope that helps.

You can't assign an REO contract. However, I have bought an REO in an LLC and sold the LLC to another investor instead of the assignment. It's better if you have find a JV investor to split the deal with you (assuming the deal is good enough).

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