what should i expect approaching a hard money lender for the first time?

Question

i currently own a duplex and have been land lording for 18 yrs. i have found a potential investment opportunity  30 miles away. it is located in a community slated for substantial growth over the next decade due to the current construction of new semiconductor manufacturing facilities. the property is a 24 unit apartment building. supposedly it historically maintains 95-100% occupancy and has a waiting list. my question is what documentation should i expect the lenders to want?  i have the current rent rolls & yearly expense report so far. however, i would assume they will require much more. as i have never approached a hard money lender, i would appreciate any advice given. im in texas by the way. thank you

Christopher Satterwhite · Answer

thanks for your input. im not concerned. ive just never done hard money. thanks for your insight and information. i have all of the information you suggested will be required. im attempting this next week. my worst case scenario is a hard no. that just makes me work harder

Mike Klarman · Answer

So, for something like this.  The process can be more intensive than you think.  First, only a select few will do this many units.  Not impossible to get done, but if you never made a purchase like this before a lender will have a ton of questions and requests.  Like who will manage the building, what is the collective rent, what are the taxes and insurance, is it all up to codes of the town, zoning questions, what is the as-is value - this will be very, very hard to comp and the lender will come in at the low end of the comps for sure.  Do you have 30% - 40% to lay down on this?  I can't see getting financing better than 70% and if there is a lack of experience at this many units or other factors are not perfect then you'll need to lay out 35% - 40% and that's even if you can get it done plus it will take a long time to close.  Lots of moving parts: Title, Insurance, Lender, Appraiser, Investor.  The odds of all the pieces doing their jobs flawlessly are long.

Christopher Satterwhite · Answer

thank you for your input. so far this seems to be in line with what i expected.

Trace David · Answer

It is going to depend on your goals with the property.

If you're using hard money simply for the purchase and plan to refinance, the hard money would actually require less than long term financing. Most cases with Hard money it is temporary financing with minimal standard guidelines. Plus most hard money lenders will require a fair market appraisal.

If you plan to rent, you already have that documentation plus the appraisal will provide estimated rents. However, if you plan to rehab at all, you will then need a licensed contractor to provide bids on each project you plan to rehab.

You will then be asked to provide a proof of any funds to close, purchase agreements, and if closing as an LLC - most times documentation on that LLC.

Overall, the larger number of units (5+) makes the lending process based more off the property than the borrower, contrary to traditional single family housing.

I would recommend you work with a Loan Originator/Broker who will be the medium for you to the lender/s. It is our job to facilitate and make the process smoother while selecting the most appropriate product/lender based on your overall goal. It also would help by brokers pricing with multiple lenders - rather than you pricing one at a time. There is a huge variance in underwriting guidelines, programs, rates, etc.

Send me a message if you want to dive in to the scenario any more!