East Texas · Member since 2019 · 4 posts · 0 votes
So, I have been in residential construction for over 20 years and in real estate for 7 years. I am really wanting to get into flipping due to my experience on both sides. Who are the best lenders to use? Hard money or private money. Also, how do I find the private money lender?
I spoke with a hard money lender & rates were ok , but they wanted me to have pretty much the same amount of money available that I was needing. If I had the money I wouldn't need their money. Any ideas and am I going about this the correct way.
Another question, if I am looking at a 100k buy with 20 I in repairs and ARV is 140k. How much out of my own money will I need to make this deal happen if any? Obviously, I would like to NOT come out of my own pocket if possible.
Specialist · Delran, NJ · Member since 2016 · 2k+ posts · 951 votes
6y
Okay @Steven Andrews it's good to hear that it's just an example because, as you said it's a bad flip, however, it's also a bad example. The others covered the salient points regarding where and what private lenders are and what to expect from hard money lenders in general. There are a lot of different options available depending on the lender, but the reason I said it's a bad example is because a pretty common standard amongst hard money lenders is to lend no more than 65-75% of ARV. So even a lender offering 100% financing would only offer 91-105K total for the purchase and rehab which would mean you'd have to come to the table with cash.
East Texas · Member since 2019 · 4 posts · 0 votes
6y
Maybe! So, I find a house that is for sale at an asking price of 100k. The amount of money needed for rehab is 20k. After rehab is completed the value is now 140k. Showing a gross profit of 20k
East Texas · Member since 2019 · 4 posts · 0 votes
6y
I appreciate the reply, however, for explaining purposes I used an example. I agree that would be a bad flip. I am using hypothetical numbers so I can get a better understanding to my question.
Rental Property Investor · Winston Salem, NC · Member since 2019 · 63 posts · 54 votes
6y
@Steven Andrews private money badically comes from people you have relationships with. Ive had no luck finding a good HML. They will usually fund 80% of the project from my understanding. They want you to have some skin in the game too
Lender · Wichita, KS · Member since 2018 · 11 posts · 3 votes
6y
@Steven Andrews I agree with what @Brandon Cooper said about private money being people you know. Couple of things on Hard money lenders to be noted, 1. Shop around to many different lenders, they all pretty much do the same thing in that they want you to put some money down (some want you to show more vs put more down). But vary slightly on their process and docs they require. 2. If they advertise 7% and no points its probably to good to be true or you have to have something ridiculous like 10 flips in the last year to qualify. 3. From my experience most HML's are going to want 10-20% down, depending on either experience or credit. Most use compensating factors to try to get the best leverage possible.
Using your example, you would most likely have a down of $12,000 and total costs (lender fees and title/insurance fees) of around $15,000 to $16,000.
Specialist · Delran, NJ · Member since 2016 · 2k+ posts · 951 votes
6y
Okay @Steven Andrews it's good to hear that it's just an example because, as you said it's a bad flip, however, it's also a bad example. The others covered the salient points regarding where and what private lenders are and what to expect from hard money lenders in general. There are a lot of different options available depending on the lender, but the reason I said it's a bad example is because a pretty common standard amongst hard money lenders is to lend no more than 65-75% of ARV. So even a lender offering 100% financing would only offer 91-105K total for the purchase and rehab which would mean you'd have to come to the table with cash.
Lender · Santa Rosa, CA · Member since 2017 · 283 posts · 255 votes
6y
@Steven Andrews If you want to do a no money out of pocket deal, bring in a partner to supply the money. Some lenders will do this for clients who have borrowed a number of times from them.
I'm not sure what you mean when you say they want you to have almost as much as you need. In your example, are you saying they want you to come up with almost $120K?
Where are you located? You should be able to get up to 90% of purchase, 100% of renovation up to 70% of ARV. Small variations but those are good rules of thumb. However, you will need in that case 10% of purchase, closing costs, 1 year of insurance, 6 to 9 months of interest AND enough to float 1 construction draw. Think of construction draw as reimbursement. Once work is completed and you pay, the lender will reimburse you. In a $20K renovation, that is probably about $7K per draw.
So, I have been in residential construction for over 20 years and in real estate for 7 years. I am really wanting to get into flipping due to my experience on both sides. Who are the best lenders to use? Hard money or private money. Also, how do I find the private money lender?
I spoke with a hard money lender & rates were ok , but they wanted me to have pretty much the same amount of money available that I was needing. If I had the money I wouldn't need their money. Any ideas and am I going about this the correct way.
Another question, if I am looking at a 100k buy with 20 I in repairs and ARV is 140k. How much out of my own money will I need to make this deal happen if any? Obviously, I would like to NOT come out of my own pocket if possible.
Howdy @Steven, There are literally thousands of private money lenders out there. Even I am have one Private money deal in my REI portfolio! I'd recommend finding investors for your deals the same way you find good deals for yourself. You need to run the numbers, and have a way to present that information to potential investors... The BiggerPockets calculators are a great tool for that because the output looks professional, and can be easily added to a packet of materials for potential investors. Once you found a great deal, it's about "packaging" and salesmanship. The places I went for instructions about packaging deals for investors is:
Matt Faircloth's live BP webinar (and his book: Raising Private Capital)
Pine Financial Group online webinar by Justin Cooper
Private lenders in my opinion are uthe best way to go. If done correctly you can get them to finance 100%. If you don't have any private investors you will need to attend events where they are; REIA meetings, meetups, property tours or find family, friends etc. My first BRRRR was 85,000 buy, 15,000 rehab, refinanced at 125,000. No money in. I paid for the rehab. After the third project my lender started funding both the purchase and the rehab 100% funded.
Investor · Boulder, CO · Member since 2016 · 1k+ posts · 1k+ votes
6y
@Steven Andrews It depends on the terms. Between HML and PM who will give you the lowest down payment, highest (and easiest) rehab terms, better rate, lower fees (watch out for draw fees and inspection fees), and longer timeline to execute. In my experience, PM has shorter timelines and higher extension fees. Although the terms look better upfront, if you miss the window and have to extend, it comes at a HIGH premium. I generally look for a minimum of 12 month timeline. Anything less in this market I feel is a gamble. I've had what I think is a slam dunk BRRRR take 6 months to refi out. Protect yourself even if it cost you a little bit upfront.
I agree with @Whitney Hutten up to a point. I feel the words HML and Private Money Lender are blurred. A private lender is borrowing from an individual while Hard Money Lender is more institutional even if the funds are from a private equity group.
Private Lenders rarely check your credit or financials for that matter. There is no application, no appraisal, etc You present your project flip, brrrr or other investment and they decide. It’s more of an investment in you. They are trusting you can execute the deal and you have a previous relationship most times.
HML generally will ask for an application form, check your credit, tax returns, etc. You will pay more points and possibly a higher interest rate and the loan will be 70% of ARV depending on the lender. I feel for the average SFH and or 4 unit or less investor private money is the best avenue. Lastly, loan documents on a private lender are prepared by the borrower not from the private lender (note and mortgage or deed of trust depends on your state). HML will generally prepare the documents. I agree you must read all documents so you understand what you are signing.
Lender · Santa Rosa, CA · Member since 2017 · 283 posts · 255 votes
6y
I think the answer is like and old Deion Sanders commercial. It started with "Baseball or Football?" Deion says "Both" then "Offense or Defense?" Deion says "Both" and finally Jerry Jones (Cowboy's owner) says "$12M or $15M" and Deion says "Both"
You want as many tools as possible in your belt. Private money is generally harder to get but great once you have it for straight forward deals. Private will generally be cheaper. Hard Money is generally easy to find. Some advantages to hard money.
1. Professional, experienced, critical eyes reviewing the deal and actually provide additional borrower safeguards to mitigate certain pitfalls
2. Commitments are rock solid (if they are a good lender) - things don't come up at the last second where they don't have the funds for the loan
3. More capacity to fund than you have capacity to do deals which should mean more time doing deals and less time finding funding
I guess this sounds like a commercial for Hard Money Lending which isn't my point. My point is you should cultivate multiple sources for short and long term financing. This should be an ongoing effort, not started when you have a deal.
If you have a deal, make sure you get a financing offer that will work within your numbers. At that point, focus on the other things needed to execute the deal. Then you can share the deal with other potential people as an already done deal, not a request or solicitation for a loan. That puts you in a much better position and allows you to plant seeds and find lenders for future deals.