Lender · Collingswood, NJ · Member since 2015 · 5 posts · 1 vote
I'm doing my due diligence on HML'S in my area and pretty much they are all along the same lending premises. My question is about when the money for rehab is being phased out. I know it is wired after their inspector reviews the completed work. When working with a contractor with little funds how do you as an investor or how can you negotiate for them to start the work, pay for materials, and complete the work so it can be inspected so they can get paid? I know some contractors have accounts set up with vendors, manufactures, ect...can you leverage the fact that you are dealing with hard money and that contractors understand the process? Or do you HAVE to come out of pocket in this instance? (I know I asked a few questions lol but...)
@Manolo D. makes a good point. If you can't pay cash then he doesn't want the aggravation of getting his money from me on your behalf. The expectations need to be set with the contractor in terms of how and when to receive payment. As long as you have a term sheet in hand from a valid lender the contractor will have assurances of being paid.
I do HML through my self directed IRA, with construction loans on a draw basis. The party I work with is highly trustworthy, the only way I would do this.
Depends on the contractors you are using. Usually the cheaper ones everyone wants can't afford to front the costs. The more established ones that can probably charge more.
Our process requires the borrower to come out of pocket before being reimbursed. If your contractor is willing to buy materials and perform labor with a delayed payment then you'd still be okay with most lenders but, as has been mentioned, most of us want to see your ability to participate financially in the deal.
Thanks guys I appreciate all your responses...@Jeff Lezark I intend to have some skin in the game. Any suggestions with working with contractors as far as negotiating and leveraging the fact that I am using hard money?
Timothy Richardson Most contractors wont deal with it, I wouldn't, if you can't cut me a check, then I don't want the hassle. Why would I deal with a third party? If my contract is with you, I answer only to you and nobody else, if my contract is with the lender, then I will be fine with it, as long as there are clear expectations between me and whoever is cutting the check.
@Manolo D. makes a good point. If you can't pay cash then he doesn't want the aggravation of getting his money from me on your behalf. The expectations need to be set with the contractor in terms of how and when to receive payment. As long as you have a term sheet in hand from a valid lender the contractor will have assurances of being paid.