Hard Money Loan Increase?

Question

I recently purchased a triplex under a HML. We recently received approved permits / drawings, which has resulted in scope increases (e.g. masonry, deck repair, framing) and cost over-runs by 20-25%.

How should I navigate a loan increase converstion with the HML? I can also cover the variance out-of-pocket if necessary.

Mike Klarman · Answer

If the loan is closed, there will be no loan increase.  If you added a contingency to the rehab then you can draw on that.  Everything else is out of pocket unfortunately.  Something else to consider is to wholesale out.  but a triplex I am guessing you want to hold so you'll have to eat these short term expenses and make it up long-term once appreciation and cashflow have increased.

Erik Estrada · Answer

Hi Glen,

I personally wouldn't recommend putting anything on a credit card, unless you know for a fact you will pay the balance off before the 12 month intro period.

More debt will put you in a tough spot, especially in a market like this. I would recommend getting a JV partner to help you finish the project. You could try to do a mid-construction refinance, however you will need to have a VERY accurate budget, and conservative ARV comps. Most lenders will just payoff your existing loan and increase your budget as long as you are within 70% of the ARV and typically, 85% LTC.

Ko Kashiwagi · Answer

Hi Glen,

If you have contingencies bugger in the original scope you could probably apply that. Most programs don't allow you to increase budget after the loan closed.

If you are able to covering it out of pocket is probably the best option. You could get a business credit card that won't report to your personal credit and get 0% APR for 12 months if you qualify which is one way to navigate liquidity.

Glen Fernandes · Answer

@Jaycee - I don't believe it will, the scope increases are mostly bringing the property up to code. The current LTV is around 63% and is expected to now be around 72%.

Jaycee Greene · Answer

hey@Glen Fernandes! Does the scope increase also increase the ARV by any chance?

Hard Money Loan Increase?

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