Hard Money Analysis Reality Check

[Brant Jones]

Hey BP! I am looking at hard money as a way to fund my next BRRRR deal. Although I am familiar with conventional and personal loans, hard money is something I do not fully understand yet and would welcome any help in making sense of my numbers.

Deal by the numbers...

Duplex (2/1 each side)
Purchase price: $51,000
Appraised value: $62,000
Rehab: $15,000
Loan to Cost (LTC): $66,000
ARV: $82,000

Hard money lender offering the following terms:

75% of LTC... assuming $49,500???
100% of construction costs
65% of LTARV... assuming $53,300???
10.99% IO on full loan balance for 13 months
2 points ($990), plus 6-months IO ($2,571.66) in reserves required

I am planning to use private money for the $15k rehab.

If the HML is willing to fund 75% LTC, do I simply need to bring the balance, plus points, escrow reserves, closing costs, to close the deal?

Assuming:....

$49,500 max LTC
------------------------------
$1,500 difference between purchase price and 75% LTC
$990 points
$2,571.66 IO pmts (6 mos.)
$2,500 closing costs
------------------------------
Cash to close: $7,561.66

Does this look right or am I missing something?

Are HML transactions considered cash purchases for the purpose of refinancing to a Freddie/Fannie loan in six months?

Thanks in advance for your help!

[Joseph M'Mwirichia]

Originally posted by @Brant Jones:

@Joseph M'Mwirichia, the rehab will be funded by a separate private lender, not the HML.

How does it work if the HML has a minimum loan amount of $50k, but putting 10% down in this case will put our loan amount under the 50k threshold?

Do they typically make an exception, or not require a down payment?

Most HML have 5 key criteria, how much of the purchase price they will lend to (LTV), how much of the rehab budget, how much of the total cost of the project (purchase + rehab; LTC), maximum limit to after repair value (%ARV), threshold of actual loan amount (eg. $50,000-5M)

In this scenario, your only concern is the LTV since the rehab money will come from somewhere else. With the purchase price that low, this particular HML will not work. Find one with a lower lending limit.

As for the question of down payment dropping the actual loan balance below lending limits, that shouldn't matter but is a dependent the HML. They all do things differently.