Hard Money Lending for Flips
Rental Property Investor · Lexington, KY · Member since 2021 · 16 posts · 19 votes
Hard Money Lending for Flips
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Member since 2019 · 7k+ posts · 4k+ votes
3yQuote from @Connor Lewis:
Hello BP!
I have a goal to complete my first flip this year. I don’t have all cash in hand, so I’m looking for a hard money lender. Does anyone in the Kentucky area have any recommendations for hard money lenders that they’ve worked with? I could go online and find someone, but I prefer to rely on referrals first.
Following that question, for those who have done flips with hard money, what should I be aware of? I understand the basic premise, but is there any advice you’d give to someone starting out? I appreciate any and all responses. Thank you!
This is my way of thinking :
1. Do you have your own OO primary now ? If not, do live in flip and sell after two years.
2. If this is for flip, do you know if you going to flip habitable house ? If yes, just use conventional financing, still way better than HML
3. if you really really really have to use DSCR lender, contact DSCR lender that has office locally
4. if you cant find local HML then contact large HML that has license to work in your state, and able to "close".
But first of all, make sure you have the money for rehab in case something goes wrong.
5. Do very analytical on the market where you are going to flip , not too much on the house itself.
13 Replies
- Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes3y
Quote from @Connor Lewis:
Hello BP!
I have a goal to complete my first flip this year. I don’t have all cash in hand, so I’m looking for a hard money lender. Does anyone in the Kentucky area have any recommendations for hard money lenders that they’ve worked with? I could go online and find someone, but I prefer to rely on referrals first.
Following that question, for those who have done flips with hard money, what should I be aware of? I understand the basic premise, but is there any advice you’d give to someone starting out? I appreciate any and all responses. Thank you!
What % of the all in do you have ? What is the ARV ?
- 3yKerry Noble JrPro MemberInvestor · Indianapolis, IN · Member since 2018 · 2k+ posts · 1k+ votes
1 tip i would give you.....factor in all your financing and holding costs.....keep a tab on that
- Rental Property Investor · Lexington, KY · Member since 2021 · 16 posts · 19 votes3yI don't have a deal yet. Just looking for advice at the moment. Thanks!
Quote from @Bob S.:
Quote from @Connor Lewis:
Hello BP!
I have a goal to complete my first flip this year. I don’t have all cash in hand, so I’m looking for a hard money lender. Does anyone in the Kentucky area have any recommendations for hard money lenders that they’ve worked with? I could go online and find someone, but I prefer to rely on referrals first.
Following that question, for those who have done flips with hard money, what should I be aware of? I understand the basic premise, but is there any advice you’d give to someone starting out? I appreciate any and all responses. Thank you!
What % of the all in do you have ? What is the ARV ?
- Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes3y
Quote from @Connor Lewis:
I don't have a deal yet. Just looking for advice at the moment. Thanks!Quote from @Bob S.:
Quote from @Connor Lewis:
Hello BP!
I have a goal to complete my first flip this year. I don’t have all cash in hand, so I’m looking for a hard money lender. Does anyone in the Kentucky area have any recommendations for hard money lenders that they’ve worked with? I could go online and find someone, but I prefer to rely on referrals first.
Following that question, for those who have done flips with hard money, what should I be aware of? I understand the basic premise, but is there any advice you’d give to someone starting out? I appreciate any and all responses. Thank you!
What % of the all in do you have ? What is the ARV ?
Well you cant do anything without a deal, so many go backwards. Please go to your local RE meeting, learn then apply what you learn., FYI you are going to need at least 40% down as you do not have any experience.
All the best
- Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes3y
Do not plan to hold hard money for more than six months. Most projects are over budget and take longer, make sure you borrow more than enough funds to fund the rehab.
- 3yJames WilcoxBusiness MemberReal Estate Agent · Bowling Green KY ~ Lexington, KY · Member since 2015 · 1k+ posts · 602 votes
Quote from @Connor Lewis:
Hello BP!
I have a goal to complete my first flip this year. I don’t have all cash in hand, so I’m looking for a hard money lender. Does anyone in the Kentucky area have any recommendations for hard money lenders that they’ve worked with? I could go online and find someone, but I prefer to rely on referrals first.
Following that question, for those who have done flips with hard money, what should I be aware of? I understand the basic premise, but is there any advice you’d give to someone starting out? I appreciate any and all responses. Thank you!
Send me a DM and I can answer this with more information.
REI James w/ eXp Realty54 Reviews - Investor · Midwest markets · Member since 2023 · 11 posts · 14 votes3y
Hey Connor!
Using hard money loans for real estate flips can be a great way to finance your deals, especially when traditional bank financing isn't an option. However, hard money loans do come with their own set of challenges and risks. Here are some tips to consider:
- Understand the Terms: Hard money loans often come with higher interest rates and fees compared to traditional loans. Make sure you understand all the terms, including the interest rate, points, fees, and loan term before you sign. Remember, the interest rate is typically much higher than conventional loans due to the higher risk to the lender.
- Calculate Your Costs Carefully: When using hard money to finance a flip, it's important to accurately calculate your repair costs, holding costs, selling costs, and potential profits. Underestimating your costs or overestimating your profit can quickly turn a potentially profitable flip into a money pit.
- Have an Exit Strategy: Hard money loans are typically short-term loans, often lasting just 12 to 24 months. If you aren't able to sell the property before the loan term is up, you could be in a tough financial position. Always have a clear exit strategy before you start.
- Relationship with Lender: Hard money lenders can often provide funding faster than traditional lenders, but it's important to build a good relationship with your lender. They can be valuable partners, offering advice and even helping you find potential deals.
- Time is of the Essence: With high interest rates, the longer it takes to flip the property, the more money you'll pay in interest. It's critical to have a detailed plan to complete the renovations and sell the property as quickly as possible.
- Avoid Over-leveraging: Borrowing too much money can lead to financial trouble. You should be cautious not to over-leverage yourself by taking on too many hard money loans at once.
- Consider a Backup Lender: If your primary hard money lender falls through, you'll want to have a backup plan. Have contact with multiple lenders to ensure you have options.
- Experience Matters: Hard money lenders often prefer to work with experienced investors. If you're new to real estate investing, you might consider partnering with a more experienced investor or making sure you have a mentor or real estate coach to guide you.
Remember, every deal is different, and it's important to do your due diligence and consult with a real estate attorney or financial advisor when necessary. Good luck!
- Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @Connor Lewis:
Hello BP!
I have a goal to complete my first flip this year. I don’t have all cash in hand, so I’m looking for a hard money lender. Does anyone in the Kentucky area have any recommendations for hard money lenders that they’ve worked with? I could go online and find someone, but I prefer to rely on referrals first.
Following that question, for those who have done flips with hard money, what should I be aware of? I understand the basic premise, but is there any advice you’d give to someone starting out? I appreciate any and all responses. Thank you!
This is my way of thinking :
1. Do you have your own OO primary now ? If not, do live in flip and sell after two years.
2. If this is for flip, do you know if you going to flip habitable house ? If yes, just use conventional financing, still way better than HML
3. if you really really really have to use DSCR lender, contact DSCR lender that has office locally
4. if you cant find local HML then contact large HML that has license to work in your state, and able to "close".
But first of all, make sure you have the money for rehab in case something goes wrong.
5. Do very analytical on the market where you are going to flip , not too much on the house itself. - 3yStephanie P.Pro MemberWashington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
Quote from @Bob S.:
Quote from @Connor Lewis:
I don't have a deal yet. Just looking for advice at the moment. Thanks!Quote from @Bob S.:
Quote from @Connor Lewis:
Hello BP!
I have a goal to complete my first flip this year. I don’t have all cash in hand, so I’m looking for a hard money lender. Does anyone in the Kentucky area have any recommendations for hard money lenders that they’ve worked with? I could go online and find someone, but I prefer to rely on referrals first.
Following that question, for those who have done flips with hard money, what should I be aware of? I understand the basic premise, but is there any advice you’d give to someone starting out? I appreciate any and all responses. Thank you!
What % of the all in do you have ? What is the ARV ?
Well you cant do anything without a deal, so many go backwards. Please go to your local RE meeting, learn then apply what you learn., FYI you are going to need at least 40% down as you do not have any experience.
All the best
That's really not accurate. With no flips under his belt, but he owns his primary residence, he should be able to get 80% on the acquisition funds and 100% of the rehab covered.
- Specialist · NJ · Member since 2022 · 1k+ posts · 650 votes3y
Ok, so I do deals with newbies all the time. There are places that will give him 80% plus 100% of rehab probably capped at 65% of ARV for the max loan amount.
Things first timers need to consider:
1) Your interest rate will be north of 12% - this means you will pay 1k/mo for every 100k borrowed.
2) Rehab funds are escrowed funds. You do not get them at close. They are distributed on a draw basis for COMPLETED WORK. This means that 15% - 20% down payment your contractor wants to get going must come from you.
3) if you are new, have good credit and have more than enough to do the deal. If the lender wants to cut your leverage to 75% on the first one, just take it and roll. Once you have 3 under your belt you'll get treated differently.
4) One BIG deal and one small deal are both worth 1 for exp. Do a few small ones. purchase under 100k and rehab under 50k. This way the beginning terms don't hit your pocket that hard.
- Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes3y
Quote from @Connor Lewis:
Hello BP!
I have a goal to complete my first flip this year. I don’t have all cash in hand, so I’m looking for a hard money lender. Does anyone in the Kentucky area have any recommendations for hard money lenders that they’ve worked with? I could go online and find someone, but I prefer to rely on referrals first.
Following that question, for those who have done flips with hard money, what should I be aware of? I understand the basic premise, but is there any advice you’d give to someone starting out? I appreciate any and all responses. Thank you!
Flipping is cash intensive as you already know. The basic hard money flip goes like this. Lots of variations, but this is the general idea. A hard money lender will lend 80% of purchase or 65% of ARV, usually at 12% interest for a new flipper, depending on the hard money lender - you bring in the rest
Lexington Flip -
1,500 sq ft houseNew, inexperienced
flipperCheck comps and see
what finished flip will
sell forPlan to sell at (ARV) $300,000 Real Estate Agent 5% $15,000 Closing costs- selling $1,500 Purchase Price $194,500 (after computing costs) Borrowed amount 80%
of purchase price$155,600 HML 80% of purchase price Monthly Carrying Costs
at 12% interest + taxes,
utilities$2,000 monthly payments for 6 months $12,000 Rehab $30 sq ft
1,500 sq ft$45,000 rehab costs Closing- buying $2,000 buying costs $0 10% Profit $30,000 Profit Must Buy At -
Purchase at 65% ARV$194,500 Purchase price Hard Money Lender will
Lend 80%
(of purchase price)$155,600 You come in with 20% $38,900 Must have cash on hand - 7hErik EstradaBusiness MemberLender · Member since 2022 · 6k+ posts · 1k+ votes
Happy to connect!
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