How much does hard money cost?

Rehabbing & House Flipping
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How much does hard money cost?

Account Closed
Investor · Oklahoma City, OK · Member since 2016 · 17 posts · 7 votes
I'm looking at using hard money for a rehab flip in Oklahoma City. What kind of interest rate, discount points, and other processing fees should I expect to pay? Thanks for any hard money or rehab advice!
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Ned CareyPro Member
Moderator
Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
9y

For those readers who are scared away by the high interest rates of Hard Money lenders, remember

If hard money helps you do a profitable deal you couldn't otherwise do - it doesn't cost you anything - It makes you money.

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  • Brian Ploszay
    Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes
    9y

    For sure, the rates have gone down the last 3 years.  

    1Reply
  • Stephanie P.Pro Member
    Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
    9y

    @Account Closed

    It depends on our experience level and how much cash you have to put into the deal.

    If you're coming in with no experience and only have 10% of the purchase price to put down and you need the entire rehab funded, expect to pay 12-15% and 4 or 5 points.

    If you've done a ton of flips, expect to pay about 8 or 9% and 2 or 3 points.

    That's about the range.

    Stephanie

    6Reply
  • Eugene Kemp
    Ormond Beach , FL · Member since 2015 · 345 posts · 223 votes
    9y

    Just paid off my guy yesterday....effectively 18%. 3 points up front and 15% interest on the loan. Feels REALLY good to have him out of my life! :-)

    4Reply
  • Account Closed
    OP
    Investor · Oklahoma City, OK · Member since 2016 · 17 posts · 7 votes
    9y
    Ok thanks, I was just wondering if what got quoted (12% rate, 3.5 points, and $1500 processing fee) was roughly accurate.
    0Reply
  • Jeff Filali
    Rental Property Investor · Broken Arrow, OK · Member since 2016 · 1k+ posts · 1k+ votes
    9y

    @Account Closed You can probably find better rates dealing with a local private HML in Oklahoma. Especially if you have some experience and only short-term needs for partial funding, or just need funding for the rehab portion. If you need the full project funded, and aren't putting up any of your own money, you will probably pay a lot more. Good luck!!

    1Reply
  • Anthony SuscoPro Member
    Lender · Turnersville, NJ · Member since 2016 · 173 posts · 68 votes
    9y

    @Account Closed mentioned, you might be able to find better rates depending on your level of experience and available cash to put into the deal. However, the rates/costs you were quoted don't seem unreasonable to me but granted, I don't know your entire situation. One thing to look out for with HML is any up-front fees being charged. Besides an inspection/appraisal fee and possibly a fee to run your credit, there shouldn't be any up-front fees.

    1Reply
  • Melvin ListBusiness Member
    Lender · Tampa, FL · Member since 2016 · 1k+ posts · 381 votes
    9y

    @Eugene Kemp there are many institutional lenders that are between conventional and hard money if you have a little extra time to close 

    C2 Financial
    WebsiteView Page
    0Reply
  • Doug W.
    Flipper/Rehabber · Alexandria, VA · Member since 2014 · 461 posts · 262 votes
    9y

    I have run the numbers on national HMLs and local ones and it almost universally comes out to 20%-24% per annum. 

    1Reply
  • Shawn Ward
    Real Estate Investor & Consultant · Los Angeles, CA · Member since 2016 · 620 posts · 386 votes
    9y

    Not sure there, but I work with national HML 's. Here is Cali, if you have experience, you can get 1.5 points, 8.75%,

    0Reply
  • Shawn Ward
    Real Estate Investor & Consultant · Los Angeles, CA · Member since 2016 · 620 posts · 386 votes
    9y

    and rehab 100% financed.

    0Reply
  • Stephanie P.Pro Member
    Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
    9y

    @Shawn Ward

    Could you tell us which lender does 8.75% with 1.5 points with little experience?  I'd like to sell to them.  

    LimaOne advertises 7.99 and 1.5%, but you have to have closed over 15 flips.  That doesn't take into consideration their minimum fee amount of $3500.  

    Civic is also a good one, but they are local to the west coast.  

    1Reply
  • Shawn Ward
    Real Estate Investor & Consultant · Los Angeles, CA · Member since 2016 · 620 posts · 386 votes
    9y

    @Stephanie P. please re-read my post. I said 'Here is Cali, if you have experience, you can get 1.5 points, 8.75%,'

    Never said little. I was just sharing my experience, ...and yes, as a newbie, you can expect probably 10% IR, 2.5 pts. 

    0Reply
  • Stephanie P.Pro Member
    Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
    9y

    @Shawn Ward

    But what's the name of the lender?  I'm sure they'll appreciate the free plug and I may be able to send them some loans.  

    I'm thinking the OP has little experience so this doesn't really pertain to him and I hope he'll excuse me for hijacking his thread a little, but I have borrowers that have solid experience and I'd like to get them a better rate/terms if possible.  

    1Reply
  • Shawn Ward
    Real Estate Investor & Consultant · Los Angeles, CA · Member since 2016 · 620 posts · 386 votes
    9y

    Civic .. and Patch of Land are the two HML 's I work with the most.

    0Reply
  • Shawn Ward
    Real Estate Investor & Consultant · Los Angeles, CA · Member since 2016 · 620 posts · 386 votes
    9y

    and have these great rates

    0Reply
  • Stephanie P.Pro Member
    Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
    9y

    @Shawn Ward

    My husband has a former co-worker who works at Civic.  Jim Burritt.  Good guy.  I wish they were out here on the east coast.  Patch of Land hasn't really done much for us.

    Thanks for letting me know.

    Stephanie

    1Reply
  • Cody L.
    Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
    9y
    That's like asking "how much does a car cost?" As low as 5, 0 points. As high as 15% with 5 points
    1Reply
  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    9y

    For those readers who are scared away by the high interest rates of Hard Money lenders, remember

    If hard money helps you do a profitable deal you couldn't otherwise do - it doesn't cost you anything - It makes you money.

    8Reply
  • Brent Smith
    Real Estate Professional · Dothan, AL · Member since 2017 · 22 posts · 14 votes
    9y

    Lots of good advice here, but also some really suspicious claims. No HML will do it for 5% and zero points unless its your grandma or you're putting up amazing collateral in addition to first position on the trust deed. In the real world where you only have a business relationship with the HML you can expect to start out around 12% and 3-5 points. If they want a minimum fee or additional fee to the points being charged, then just keep looking. Further, not many people are talking about LTV or LTC ratios. I would NEVER ever ever ever lend more than 80% of MY ESTIMATED VALUE of the asset. Until you get a relationship you'll probably pay higher rates and lower LTV/LTC near 60% (whichever is lower). Once you have a few deals you could pay 8% and 1-2 points... but the points will ALWAYS be there (unless you pay like 18% interest with other weird terms). No HML in his right mind would do zero points AND a low rate... why would he when he can get higher ROI from a million other people while taking same risk.

    Also, the loan length can be different. For flips it could be 12%/4pts for only 90 days... then they'll build a 60 day extension in for an additional 2-3 points... stuff like that. 

    Be ready to prepay interest or at least make interest payments as well.

    There are a lot of ways to cook the HML. All assets and lenders are different.

    3Reply
  • Scott Matthew C.
    Real Estate Broker · MI · Member since 2014 · 594 posts · 183 votes
    9y
    Creativity is key when borrowing HML. I am of the mindset to create a win-win situation. Consider offering a profit share to get lower rates and points. In some of my cases I am willing to give 40% of my profits. I have even given 50% of profits too! Sounds crazy right? But, it's a huge Win for them and they also want to do more business with me. Now they are coming to me instead of the other way around and that's a huge Win for me and my team! Using a HML is the cost of doing business and it should be expected, therefore, you need to consider building a relationship with your HML for the long haul. Provide a worth while opportunity. Don't approach HML just to use them and beat them down in terms and to get rid of them as fast as possible. Find a HML that is willing to work with you and you with them. It's a two way street. Here is a secret from me to you(not really a secret, it just sounds cool): There are "cash rich" investors here and in your home community looking for someone with the right mindset to building wealth together. Show them you know what you're doing and then offer them a win-win opportunity! Challenge them and excite them but make sure they too feel they are on the adventure together through think and thin! Does it sound like you're dating someone? You are absolutely correct! Business relationships take time. There will be growing pains but if you keep an open mind and a willing heart to look out for your private money's best interest they will reciprocate and want to continue to grow better and stronger with you. I'll be the first to admit it, it's not easy! But now I have a HML/Private Money Loan that doesn't require points or interests. Our relationship has grown to doing business as JV Partners. I am no longer restricted with points and interest rates. My team and I are able to do more deals at a faster pace with my JV Partner who was once my Hard Money Lender. Yes, it can be done. Zero Points, Zero Interest is possible! Build a win-win, be creative, and include them in your opportunity. I don't believe in luck, I believe in building strong relationships. There will be challenges but that is expected and a sign of growth! All best!!
    3Reply
  • Michael Noto
    Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes
    9y

    First off, I love @Ned Carey's response to this post and I tell all of my rehabbing clients here in Connecticut the same thing. 

    The next thing I would suggest is using a hard money lender that is local to you. There are a lot more costs involved with using a national hard money lender including but not limited to: appraisals, draw inspections, etc. 

    1Reply
  • Doran Summers
    Lender · Chicago, IL · Member since 2015 · 608 posts · 70 votes
    9y
    It depends on your experience and loan amount. Most lenders range between 7% to 12%. 1 to 4 points in origination fees.
    0Reply
  • Jon Pitcher
    Property Manager · Oklahoma City, OK · Member since 2016 · 87 posts · 69 votes
    9y

    @Account Closed

    I know of a couple of local banks that will lend for rehab projects if you have sufficient credit, income and down payment.  The loan to value will be lower but the rates are much better.  Shoot me a message if you want contact information.

    1Reply
  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    9y

    If you aren't solid on your exit timeline-  everything!   You will lose your entire investment if you don't pay them off as agreed within the 6 months or whenever.

    Just ask Brandon.  If Daddy didn't step up and 'partner' lol with him, he would have lost his shirt his 1st time out.

    @Jay Hinrichs please drop some truth here about folks that need to 'extend' or otherwise can't satisfy a HML in the alotted contract time.

    1Reply
  • David Weintraub
    Lender · Berkeley, CA · Member since 2017 · 1k+ posts · 549 votes
    9y
    These days with experience in a neighborhood that is decent, expect to pay 11-12% for a first time borrower and 2-3 points. You could tell the HML '_________ is offering me _________' and you can get to 10-11 and 3 first time out with a min 15-20% skin. Some like to bash hard money but ultimately, if your circumstance wasn't your circumstance you'd not need it. And if you didn't get it you'd probably have no option. So maybe be more grateful you live in a world where it's an option.
    0Reply
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