Hard money lenders: What percentage of a deal do you generally fund?

Question

What percentage of a total deal will you fund on most deals? For example... I have an opportunity to buy a house for 200K that needs 50k of rehab. I'll hope to then sell it for 300+k after all's said and done.

Are you generally funding 50% of the home purchase? Just the 50K for the rehab? The whole 250k?

I'm sure this depends on the person & their experience. But just wondering what might be typical.

Thanks in advance for your expertise!

Peter Abraham · Answer

Up to 80% of your purchase as long as that amount does not exceed 65% of AS-IS value.

Luke W. · Answer

I have a lender around here that will finance up to 70% ARV for acquisition and repairs. It is 15% simple interest at first, but he has bumped it down now a bit after a few deals with him. Also, it is 5 points, but he is willing to roll that into the back of the loan to be paid off later. The 15% interest is what he asks for up front and he just escrows it for 6 months. Fairly reasonable in my opinion.

Hunter Kenihan · Answer

My HML generally does about 65% of Arv with 3 points (and a couple small fees) at 12.25% interest only.

Deals in LA at 70% of ARV less repairs are definitely possible, but not common.  If you can get 75% youre usually doing pretty well.

Jon Holdman · Answer

The rule of thumb for fix and flips is that if your purchase price plus rehab are 70% of ARV (i.e., the price you will get when you sell), you will make a profit of about 15% of ARV.  That assumes hard money, a six month hold, and that you actually hit all the numbers.  So, your example has you at 83% of ARV.  Essentially no chance for any profit.  That rule of thumb accounts, roughly, for closing costs on both ends of the flip.   Others have said its impossible to get a deal like that in LA, but the math still applies.  If you're at 75%, you might make 10%.  At 80%, maybe 5%.

Account Closed · Answer

Thanks everyone! Very helpful info from all! The deal I threw out there was a total hypothetical... but still good to know that it was thin :) - can you recommend a good way to figure out what my closing costs, taxes, and insurance might be? I actually bought my first house late last year and have the info from my purchase, but not sure if I should use that same info when roughly factoring in those costs? I do remember the closing costs & taxes were more than we'd expected.

Bill Worsley · Answer

We will go as low as 10% of total hard costs down (with a premium on rate/fee for that amount down - less cash in equals higher risk loan) for an experienced rehabber, as long as the LTV of ARV does not exceed 65%.  In this current market, rare are that deals that would qualify for the 10% as acquisition costs are higher right now due to low inventories in our market and at 10% down it is tough to stay under 65% LTV.  So ends up being 15 to 20%.  Borrower pays fees and closing costs out of pocket.

Ann Bellamy · Answer

Ben Kahle, we lend to 60% of ARV, but of course are of no use to you because we are not in your area.

Also, I agree with Steve L that your deal is pretty thin after you consider two sets of closing costs, selling costs, hard money points and interest, taxes, insurance, utilities, etc.

Steve L. · Answer

Ben -

In Southern California if you are experienced you get 70% of ARV for decent pricing (probably 2-3 points and 12% interest)

Pricing gets cheap if you will take 70% of cost or less (probably 1 point and 8-9% interest).

Recently, there are many lenders that will loan more than 70% of ARV.  They do a 1st and a 2nd.  The 2nd gets 30%-60% of the profit after paying hard money costs on the 1st.  Usually the 2nd % is tiered based on how long you own it.   This loan is really expensive and I wouldn't recommend it.

The deal you are mentioning is pretty tight.  Using Hard Money you'd be lucky to make 15k if your numbers are correct at 200k purchase, 50k rehab and 300k exit.

Good luck

Sandy Blanton · Answer

We have two heavy HML guys in our area.  The last deal I put together with them, they wanted no more than a 50% LTV.  One did do a 60% deal for an repeat/experienced borrower of  his.

Tevis Verrett · Answer

Ben Kahle I have worked with a couple of HM lenders and they expect you to have skin in the game.

I would set you up with status payments, as you progress in the rehab.

Also my threshold is 50% ARV, the remainder, I expect you to pony up.

Also, I charge points based upon the length, and interest rate is based upon relationship.

After all, we are dealing with the mistress of RISK.

I am a noob at hard money so I will defer to the more experienced.

YMMV and eager to hear more on this!

Tevis