Hard money good or bad ?

Question

Has anyone here got into the business flipping houses by themselves with a hard money loan ? (No previous experience ) Would you recommend against it if there’s a great deal available?

Odie Ayaga · Answer

It's not a matter of "good or bad" in the sense that a flathead screwdriver isn't good or bad. It's a tool in the toolbox that you should be aware of and able to use when the situation warrants. It has it's benefits (usually easier to deal with than a bank, faster, can provide rehab funds) and it's disadvantages (higher interest rate/points). Depending on your situation it may be the funding option you need.

Erica Redcross · Answer

Hi @Kevin Coleman.  I did just what you are describing last year.  I started my business on my own and purchased my property with a HML.  I don't have any regrets, as it allowed me to do this independently.  I feel a great deal of satisfaction from that.  However, there are some things you should know: most HML lenders won't fund you if you don't have an official business entity (like an LLC) set up.  Also, they are cautious with newbies like us.  I was able to qualify on my own without an experienced partner or mentor because I had taken steps to make sure my credit was over 800 before forming my company.  Your interest rate and points will be higher as a newbie, but it is doable.  It might be more difficult to find one who is open to new investors right now because of the pandemic, but if your deal is sound and doesn't require heavy rehab, you should be able to fund your deal.  If you have specific questions just message me.  Happy to help if I can.  Good luck!

Joe Aiola · Answer

@Kevin Coleman That's great advice and information from @Erica Redcross

I would just add that you shouldn't be looking for a lender, you should be looking for a solid relationship with that lender. If you can build a relationship with a HML, they're great. Tough to buy real estate with no access to money. The more the lender trusts you, the less you'll have to put into the deal as well.

Good luck!

Greg Dickerson · Answer

Hard money is very expensive and can eat up all your profits fast if you don't know what your doing. You also need money to put down, pay carrying costs and have reserves for overages and unknowns depending on the scope of the rehab. The first step is to fully educate yourself on the market, the business, rehab costs etc.

Alex S. · Answer

@Kevin Coleman I started out with a HML (Lima One) by myself and it went great made 32K in two months...but I had been a contractor for 12 years, so that helped. Most people lose because they do not know the rehab cost or hire the wrong contractor.

Mark Sewell · Answer

Your HM Lender is a partner in YOUR deal.  Think of them like a free mentor that is participating in your project right along with you.  If they aren't wild about your deal, it should give you pause to look at it again yourself.  And try to find one that is local to your market place.

It does get costly when there are project delays or surprises.  This is where I got into trouble.  I managed it but it just took way too long.  And that's on me, it could have been avoided.  I didn't properly calculate my repair and frankly, I let my burning desire to 'take action' and get started override my common sense.  I should have listened to my HM lender and simply passed on it.

There is a lot more to this than just a good interest rate.  Your HM lenders didn't get to be HM lenders by sucking at RE investing.  Find one and get in with them, like a trusted partner.

Austin Elm · Answer

You should shop around for different lenders that may come in handy for different situations.  Some lenders will require 25% down payment, while others may go as little as 10% or even 0% down given the right investment.  Some lenders may have little to no origination fees associated with the loan while others may charge up to 4% to orignate the loan plus other costs.  Duration and interest rates are a huge factor as well. I find it useful to keep a spreadsheet with different lenders terms to call upon when trying to fund a deal. Make sure they fund in the area you are investing in.

Greg Dickerson · Answer

With a credit score over 800 and experience you should be able to get bank financing now which is much cheaper than hard money.

Erica Redcross · Answer

@Joe Aiola Thats a great point!

Hard money good or bad ?

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